Top Performing Farms Thrive Despite 27% Increase in Operating Costs
The cost of running a New Zealand farm is now 27% higher than it was before Covid, putting sustained pressure on profitability acrfoss the sector, according to new ANZ research.
Bank forecasts for the farmgate milk price for 2017-18 season range from $6.10/kgMS to $6.75/kgMS.
Last week’s GDT Event price index increase of 3.6% was higher than anticipated -- the fourth consecutive rise and the biggest increase so far this year. The whole milk powder index was up 5.2%, to an average price of US$3233/tonne.
Rabobank dairy analyst Michael Harvey says milk price is a positive story.
“We see market conditions remaining elevated through next season and helping deliver a slightly higher milk price,” he told Dairy News. Rabobank has $6.25/kgMS pencilled in for the 2016-17 season, a “slight improvement on where things are at”.
The past two season have been challenging for farmers so higher milk prices will be welcome.
“It will help farmers get their businesses back on track by paying down debt and rebuilding equity positions and even catching up on farm maintenance... things that may have been deferred through the down cycle,” Harvey says.
“So we are suggesting the outlook for the next season is positive for New Zealand farmers because of higher milk prices and because a lot of input costs should remain reasonably affordable by historical standards.
“We are talking about fertiliser costs still being relatively affordable and palm kernel as a feed source is still quite cheap. Good seasonal conditions leading up to the spring flush will point to a good season for profit.
“The [upwards] correction we have had in prices has largely been driven by farmers in exporting regions around the world reacting to low milk prices and cutting production and that has tightened them up. We are seeing signs of China continuing to buy product and we think that will continue through the year. There are still pockets of demand in South East Asia; buyers are still looking to stock up on milk powder.
“The GDT result last week was more a reaction to the poor weather NZ had in April which meant the volumes being sold through the auction were reduced. That caught some buyers off-guard and made them a bit nervous.”
Rising milk prices in export regions globally always has the potential to “turn on the tap”, he says.
“But we still take some comfort [from the thought that] the price signals are not really strong enough to drive a strong reaction to supply growth over the next 12 months.
ANZ rural economist Con Williams says recent gains combined with NZD weakness have raised opening milk price forecasts to the low-$6/kgMS.
“This combined with the likely upside to the season just ending means sector cashflow prospects are looking healthy for 2017-18,” he says.
