ANZ Warns of Milk Price Risks as New Dairy Season Begins
The new dairy season is kicking off with plenty of risks to the forecast farmgate price, both upside and downside, says ANZ agricultural economist Matt Dilly.
Payout for the current season will be in the range of $3.80 - $3.90/kgMS.
Westland will also start its payout advance payments for the 2016/17 season at $3.80/kgMS payable September 20, 2016.
Chairman Matt O'Regan says, "This will provide much needed cash as early in the season as possible. Advance rates are budgeted to be phased down then stepped up, an approach similar to previous seasons."
O'Regan says the 2016/17 forecast while predicted to end with a better result than the 2015/16 season, still leaves farmers with cash flows well below their cost of production. The board and management will be looking for every opportunity to get as much cash to farmers as possible.
Chief Executive Rod Quin says the key influencers on payout are international market prices, foreign exchange rates, the contribution of Westland's value-add strategy, milk flows and expenses.
"The contribution to payout of our strategic move into value-add products – infant nutrition, EasiYo, retail butter and UHT milk and cream – is worth noting," Quin says. "Collectively, their value over and above the earnings we can expect from skim milk powder is budgeted at 48c per kgMS."
Quin says while Westland's pay out prediction is more optimistic than the current season, the market still faces a number of challenges.
"Prices remain under pressure as European and US dairy stock piles are now a feature of the market. Early contracts in our sales book are in line with budgeted prices, but market volatility with price movements, both up and down that can be sudden, make forecasting difficult.
"Based on what we see in the market today, with a forward view of global stock levels, customer demand and milk flows, we anticipate some minor increases for whole milk powder. However, we do expect pressure on skim milk and butter prices."
