Tuesday, 11 September 2018 12:55

Payout under threat

Written by  Pam Tipa
Doug Steel. Doug Steel.

With dairy prices down nearly 13% below levels of a year ago, this adds to the downside risk to Fonterra’s newly minted $6.75/kgMS milk price forecast, says BNZ senior economist Doug Steel.

In fact downside risk is building for its own $6.60/kgMS forecast, he says.

“Prices may need to improve a little to achieve a milk price in the mid-6s, depending on how the NZD performs. 

“To us, Fonterra’s forecast implies a) higher prices over the remainder of the season or b) the co-op is achieving a lower effective FX rate than we are assuming or c) the co-op is achieving better prices for some sales than those received via GDT. 

“There is still a long way to go in the season, but downside risks loom. Another round of US tariffs on Chinese goods would not help sentiment nor would any further easing in Chinese and global growth indicators. 

“On the positive side, expanding global milk production seems to be slowing amid pressure on feed supplies. And a falling NZD is offering material support to NZ denominated prices.”

The overall price index was down 0.7% at last week’s Global Dairy Trade auction -- a bit disappointing when the market had been looking for something like a 2% gain, says Steel. 

Whole milk powder (WMP) underperformed, slipping 2.2% to an average US$2821/tonne. This is a bit further below the RBNZ’s US$3000/t medium term view.  

Skim milk powder rose by 2.2%, pushing average selling prices back above US$2000/t, although the increase was not as much as expected. 

“Still it is good to see this product make some price headway as the EU reduces its massive stockpile,” says Steel.  “Cheese prices lifted 4.2%, while fats generally undershot expectations. Butter prices fell 2.8%.”

Offered WMP volumes were up 29% from the previous event as NZ milk production lifts with grass growth into spring. Overall volume sold rose 21.1% from the previous event to be up 15.9% on a year ago. 

ASB’s senior rural economist Nathan Penny says the modest overall decline last week fits with the price weakness we normally see at this time of the year.  

“Looking beyond seasonal factors, global dairy markets appear largely balanced.  NZ production is set to lift this season, albeit moderately: we expect a 2% lift this season compared to last.  

“However, dry weather offshore means exports from other producers are likely to be more scarce than usual over coming months.  Meanwhile, global demand is mixed, but overall remains relatively positive.”      

ASB is sticking with its 2018-19 milk price forecast of $6.50/kgMS but continues to note downside risks.

More like this

Cynical politics

OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.

Why is butter so expensive in New Zealand? Fonterra explains

Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.

Featured

DairyNZ thanks farm staff

August 6 marks Farm Worker Appreciation Day, a moment to recognise the dedication and hard mahi of dairy farm workers across Aotearoa - and DairyNZ is taking the opportunity to celebrate the skilled teams working on its two research farms.

Editorial: Getting RMA settings right

OPINION: The Government has been seeking industry feedback on its proposed amendments to a range of Resource Management Act (RMA) national direction instruments.

Why is butter so expensive in New Zealand? Fonterra explains

Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.

National

Machinery & Products

Fliegl offers effluent solutions

Founded in Germany as recently as 1977, today, the Fliegl Group employs more than 1100 workers, offering an expansive range…

» Latest Print Issues Online

Milking It

Fatberg

OPINION: Sydney has a $12 million milk disposal problem.

Synlait snag

OPINION: Canterbury milk processor Synlait's recovery seems to have hit another snag.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter