Prolonged dry weather will have mixed effects on commodity prices, says ASB senior rural economist Nathan Penny.
The consensus in the sector is that the price will be positive: numbers ranging from $7.15/kgMS to $7.50/kgMS, although ASB rural economist Nathan Penny is sticking his neck out and suggesting it could reach $8/kgMS.
Fonterra says its forecast is in the range of $7.00 to $7.60 with the midpoint being $7.30.
Meanwhile Rabobank dairy analyst Emma Higgins says her bank is forecasting the price to be in the range of $7.15/kgMS to $7.60/kgMS. In the banks Dairy Quarterly report, Higgins notes that the global market has picked up for skim milk powder now that EU intervention stocks are a thing of the past and that prices for skim milk powder have recently shot up.
“New Zealand’s dairy industry is now in a new milk production era, where incremental growth each season will be the norm as opposed to the large gains we’ve seen in previous seasons. With dairy conversions no longer featuring across the country, and future challenges to existing stock numbers via environmental legislation, the weather will play an even more important role in determining the degree of production needle movement,” she says.
Higgins says as market demand remains stagnant for butterfat, processors will need to re-evaluate the product mix in order to capitalise on this reversal from recent years. This she says could lead to greater price volatility than experienced previously.
Meanwhile MPI is also talking up the fortunes of the dairy sector. It says there has been a positive start to the dairy season but overall it expects growth in this season to be relatively flat.
But with strong demand from key markets and weakening international supply growth, it predicts strong prices for dairy at least in the short term.