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

Winston Peters questions Fonterra divestment plan

Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.

Editorial: A new era for two co-ops

OPINION: Farmer shareholders of two of New Zealand's largest co-operatives have an important decision to make this month and what they decide could change the landscape of the dairy and meat sectors in New Zealand.

Should co-op sell its consumer brands?

OPINION: As CEO of the Dairy Board in the 1980s I was fortunate to work with a team of experienced and capable executives who made most of the brand investments that created the international consumer business Fonterra inherited. Soprole in Chile was the largest, but there were more than 20 countries where consumer marketing companies were established and Anchor and other brands were successfully launched.

Featured

Winston Peters questions Fonterra divestment plan

Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.

National

Machinery & Products

New McHale terra drive axle option

Well-known for its Fusion baler wrapper combination, Irish manufacturer McHale has launched an interesting option at the recent Irish Ploughing…

Amazone unveils flagship spreader

With the price of fertiliser still significantly higher than 2024, there is an increased onus on ensuring its spread accurately at…

» Latest Print Issues Online

Milking It

Tough times

OPINION: Dairy industry players are also falling by the wayside as the economic downturn bites around the country.

MSA triumph

OPINION: Methane Science Accord, a farmer-led organisation advocating for zero tax on ruminant methane, will be quietly celebrating its first…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter