He says it is very gratifying to see those who monitor the situation revising dairy prices upwards, but he adds that there is still a degree of nervousness worldwide about what might happen to the global economy due to Covid-19.
Bailey says last year, people were predicting that things would be a lot worse than they turned out to be and there is hope this may happen again.
“However, dairy companies would still be a bit cautious around price expectation in the coming year,” he says.
His comments come at the same time as the Ministry for Primary Industries (MPI) is projecting a 4.6% drop to $19.2 billion in export revenue for dairy products in the coming year. In its latest Situation and Outlook for Primary Industries (SOPI) it says, in the short term, dairy export prices will remain relatively constrained. It notes that although NZ will have a strong production season, it points out that milk production in the US, Europe and Australia will also be up.
At the same time, it posts a warning about the strengthening of the NZ dollar to the US dollar, saying if this continues, it could act as a drag on dairy export revenue growth.
“For farmers, these weaker prices are expected to flow through to reduced farmgate returns with the average price being $6.90 per kg/MS. This is based on the assumption that there will be no major negative shocks to commodity prices due to Covid in key NZ markets,” says the report.
Interestingly the MPI projection on the farmgate milk price is 30 cents lower that the prediction by the ANZ bank, which last week put the forecast payout for the 2020/21 season at $7.20/kgMS.
While the outlook for the dairy industry is somewhat blurred in the coming year, MPI says things should come right in 2022 and is predicting export returns in a year’s time to bounce back to what they were last season. However, there are caveats on that – especially given that the SOPI report was done before Christmas and therefore before the most recent world outbreaks of Covid-19.
