Wednesday, 10 April 2019 12:37

Optimistic on prices, but with a caution

Written by  Pam Tipa
Susan Kilsby, ANZ. Susan Kilsby, ANZ.

Dairy farmers can be “cautiously optimistic” that current forecasts will hold, but it will depend on the global economy, says ANZ agriculture economist Susan Kilsby.

She was commenting on ANZ Research’s April Agri Focus report that says the dairy market will support a current season milk price of about $6.40/kgMS and a forecast $7.30/kgMS milk price for next season.

However, global economic risks are greater. 

Kilsby told Dairy News the supply side is reasonably supportive of prices because global milk supply is reducing worldwide. But the demand side is lesser known, she says.

“We are starting to see the global economy slow but that has not translated into less dairy demand at the moment. But it is a risk.”

Our major market for dairy is the developing nations of Asia, Kilsby says. 

“Dairy is more discretionary in the developing nations whereas in the developed nations, as in NZ, people consider dairy products a staple and we buy them whatever. In developing nations it is more of a luxury item for a lot of people. 

“But it really depends on how the economies go everywhere. We are still seeing pretty good growth in most developing nations, but the growth rates aren’t quite as strong as we’ve seen in previous years.”

Much dairy demand these days is from China because it is the world’s biggest dairy importer, she says. 

“That market is [somewhat] opaque when it comes to trying to figure out what is happening in demand…. 

“[China has its] own dairy industry which is quite sizeable and they produce more milk than NZers. But it is very expensive to produce milk there, so during periods when commodity prices haven’t been overly high their internal market has struggled to compete with imports and they have been in that position for a few years. We are not seeing the growth in their dairy industry that we thought [possible] four or five years ago so it is reasonable to assume they will continue to import.”

The challenge for NZ dairy farmers is that onfarm costs are rising, e.g. labour and compliance with tightening environmental standards, and many farms are carrying a lot of debt, she says. 

“Even though milk prices are looking quite good there is probably not going to be a whole lot of spare cash around.”

The ANZ’s Agri Focus report says they now expect NZ’s milk supply to finish this season 2.75% ahead of last season. All the gain was achieved in the early part of the season. 

During the final three months, milk volumes are expected to be nearly 5% weaker than last season, the report says. 

“Milk production volumes are expected to plateau near current levels.”

 

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