NZ remains lowest-cost milk producer - report
The cost of producing milk in New Zealand continues to compare favourably with other exporting regions despite a lift in production costs over the past five years.
A new industry report from the bank says farmers are in for a third season with a “milk price starting with a six”.
In its recently-released dairy seasonal update A hit for six in 2018/19 – New Zealand dairy farmers face a triple treat, Rabobank says New Zealand dairy farmers have enjoyed a period of profitability with milk prices above breakeven – and the upcoming season will see this run continue.
Rabobank forecasts a farmgate milk price of $6.40/kgMS for the 2018-19 season.
Report author, dairy analyst Emma Higgins, says the 2018-19 season should be profitable for most New Zealand dairy farmers, despite greater uncertainty surrounding the operating environment than would usually be the case.
One of the global risks looming in the near term is the peak period of milk production in the northern hemisphere.
“The northern hemisphere flush will be an influential pressure point for commodity prices at the start of the 2018-19 season and we anticipate that supply will outstrip global demand in the coming months,” Higgins said.
However, as the second half of the 2018-19 season develops, Rabobank anticipates commodity prices will improve as production growth from key exporting regions decreases and a robust import program by Chinese buyers supports commodity prices across this period.
Positive margins expected, but pressure points linger
The report says ample supply in key fertiliser markets continues to drive low global benchmark fertiliser prices, favouring New Zealand farmers and supporting strong farmer margins in the lead up to spring.
However, Higgins says, while farmers should budget for affordable fertiliser prices over the application period, there is risk of some inflationary retail pressure.
“Rabobank anticipates rising ocean freight costs, combined with a weakening NZ dollar over the next 12 months will result is some upward pressure on fertiliser prices,” she said. According to the report, another factor which may impact farmer margins in the 2018-19 season is upward pressure on interest rates.
