MILK growth in New Zealand will be watched closely by the Australian industry, as a Victorian analyst warns there are still downside risks to global milk pricing.
Last week Fonterra forecast a farmgate milk price of $NZ6.50 a kilogram of milk solids ($6.15kg/MS) for its New Zealand suppliers for next season. It also lifted this current season forecast to $NZ6.15/kg/MS ($5.82kg/MS).
NZ produced 21 billion litres of milk in 2015-16 and experts predict this current year will finish about 1.5 per cent below that mark. NZ exports about 95 per cent of its dairy produce and is one of Australian dairy’s largest competitors, which means it can influence prices.
Fonterra’s forecast is expected to prompt milk growth, with New Zealand analysts expecting farmgate prices to hold or decline slightly for NZ dairy farmers in the coming season.
ASB rural economist Nathan Penny, based in NZ, predicted production would rise 3 to 4 per cent following two season of negative growth. He said this growth was on the “modest” side for the dairy powerhouse nation.
“If we have an OK winter we will come out the other side of spring on turbo-charged speed, but at the same time (dairy farmers) have lost a bit of grass and mating was late so calving will be late,” he said.
“If we have average weather for the season the new season will even out and it will revert back to milk price (determining growth) and it was a fairly bullish signal from Fonterra.”
He said current Global Dairy Trade auction results indicated a farmgate milk price of $NZ 7/kg/MS ($6.64), so forecasts were preparing for a slight correction if necessary.
Rabobank New Zealand dairy analyst Emma Higgins said the $NZ6.50/kg/MS forecast would be “largely profitable” for many NZ farmers and it would mean the industry was heading into its second season of “healthy farm margins.”
Dairy Australia analyst John Droppert said the Australian industry had come out of a season that followed a farmgate milk price step-down, so the industry would be conscious of delivering on forecasts in the future.
There was also a risk with the US “still pumping out milk”.
Many Australian domestic market contracts are also believed to be benchmarked on international prices.
Source: The Weekly Times
