They are bracing for a drop in next season’s payout – probably below $6/kgMS – but point out forecasts for global demand still reflect a bright future for dairy farming.
“The dairy industry has been here before and we just carry on,” Fonterra Shareholders Council chair Simon Couper told Dairy News.
“It’s been signalled to us for some time we are in volatile times. If we look back in history we will see the price of our payout has never remained glorious forever and we have had ups and downs.”
With forecasts for Asian growth and world population “the dairy industry has a pretty good future ahead of us in the medium-to-long term”.
Federated Farmers Dairy chairperson Willy Leferink was surprised by the extent of the GDT drop. He has calculated the impact for mid Canterbury alone would be $72 million if prices continued this trend for the year.
“But we’re a resilient lot. You can’t walk away. When you are a trader you pick up and move somewhere else but the land doesn’t move.”
Leferink is closely watching variables in the
US including subsidy plans; Obama and the Congress “don’t want a bar of it” but it depends on the Senate.
He says a good US summer would not help us and their dollar is helping them hugely. “But there’s a strong incentive to cull cows as their beef market is as high as ever.
“There a humungous pool of heifers sitting there because in the US they use sexed semen like there’s no tomorrow.”
Leferink says, with Asian growth forecast, he hopes the GDT drop is “just a blip”.
“But will it have an effect on forecasts next year? Yes it will; 10% is not nothing.”
ANZ National’s chief economist Cameron Bagrie says “let’s not panic” but there were a couple of worrying factors.
“The volume price offset gain is insulating the dairy farmer in the 2011-12 season. I would suspect when Fonterra in May flags its early estimate for the 2012-13 season the payout’s going to have a 5 in front of it as opposed to a 6.
“In 2012-13, I don’t think they’re going to get that bigger volume kicker again. So that lower price is going to flow directly into the income. But high-5 dollars is still good historically so let’s respect that.”
Bagrie says to see New Zealand’s bellweather exports fall by 10% overnight and see the New Zealand dollar move up “just shows you how absurd the currency market can be at times”.
“Ultimately the economic fundamentals will reassert and you will see that reconnectivity between currency prices and the currency. The problem is that you can remain disconnected for quite a while.”
He says everyone has heard the story of Asia’s increasing demand “but let us not kid ourselves into thinking the Asia train has only got a New Zealand carriage”.
“If commodity prices are going to be very strong, of course production is going to crank up around the globe. You are going to see this volatility – mismatches between supply and demand.”
