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ASB head of rural banking Aidan Gent is encouraging farmers to speak to their banks when they are struggling.
And a healthy new season price could be on the cards, though BNZ’s Doug Steel sounds a note of caution on that.
ASB’s Nathan Penny says the rise in milk fat prices sets the new season up fairly well.
“We are expecting $6.50/kgMS at this stage (2018-19) although it’s early in the season. But if these trends continue the new season will start on a strong footing.”
With the upside in the recent GDT auction, $6.60/kgMS could be on the cards for this season but given the lateness in the season it will not change too much from here, he says. But it could move 5c or even 10c (Fonterra’s current forecast is $6.55/kgMS).
BNZ’s Steel says most of this season’s milk has been sold so last week’s result is unlikely to shift forecasts much.
“But it does add to the idea that there may yet be a few cents to add to Fonterra’s (and our) $6.55 forecast.
“A higher NZ$, up 1.9% against the US$ since the previous dairy auction, does temper the dairy price gains when expressed in NZ dollars.”
Looking to the next dairy season (starting June 1), if current pricing and currency levels persisted over the coming 18 months it would generate a milk price in the mid-to-high $6 range, says Steel.
“Barring a major change over the next month, this might be where Fonterra places its first forecast for the new season (forecast due before the end of May).”
However BNZ thinks dairy product prices will ease over the coming year with more EU supply, new EU intervention rules and potential for a world demand slowdown such that by the end of next season milk prices will be in the low $6s.
“If dairy product prices don’t fall from present levels then the milk price will likely be higher than we currently think.
“Given farmer payment structures, dairy cashflows look set to be healthy through at least calendar 2018.”
