Climate change policy and the emissions trading scheme (ETS) are farmers’ biggest concerns.
He believes farmers feeling the volatility of the last few seasons will be pleased at the co-op’s $6.25 to $7.25/kgMS forecast range.
“I think most farmers will be feeling happier with the forecast range for next year as some of us are feeling a bit battered after some of the volatility of previous years,” he told Rural News.
“Hopefully this will provide an opportunity for farmers to catch up on repairs and maintenance and pay off some debt.”
Fonterra’s $1-wide range was announced during its third quarter result presentation.
Chief executive Miles Hurrell says while the global supply/demand balance is in very good shape there are potential downsides. The trade war brewing between the US and China is something to watch out for, he said.
“Ultimately we will have no winners over the long-term,” Hurrell warned.
Fonterra will also be watching milk production during the spring flush in Europe: milk quantities out of EU countries this peak season and how fast the milk comes onto the global market.
Hurrell says the co-op must take into account these factors in forecasting a milk price for its farmers.
“It’s not easy but we are required to do this. The range we’ve presented is the best estimate at the time.”
The forecast price will be “narrowed down” as the season goes on.
ASB senior rural economist Nathan Penny says the opening forecast range is relatively healthy. He notes that given the midpoints, the forecast if realised would represent a 40 cent/kgMS gain on 2018-19.
However, Penny remains more bullish than Fonterra about the 2019-20 season.
“Fonterra expects very modest milk collections growth of 0.6% which would also underpin the new season’s milk price forecast,” he says.
“While we agree with the sentiment, we are more bullish on the outlook for global dairy prices than Fonterra.
“The current ‘spot milk price’ is a shade under $8.00/kgMS. Global production growth is soft and unlikely to match growth in global demand over the remainder of 2019.”
With the NZ dollar falling below US75c, Penny says the bank has pencilled in a $7/kgMS milk price forecast for 2019-20.
“And we see upside potential to that number. Indeed, if we were to use a similar $1/kgMS forecast range ours would be roughly $6.70 to $7.70/kgMS.”
Fonterra chairman John Monaghan says the opening forecast is realistic.
“We are have to look out more than a year into the future which is difficult. But the information available is continuing to show us that demand remains strong across key trading partners and this is reflected in GDT prices.
“We are giving farmers a wide range for the opening forecast milk price. It will be narrowed as the season goes on.”
Minnows pay more
Canterbury processor Synlait announced an opening forecast base milk price of $7/kgMS for the new season.
However, the company acknowledges that this forecast relies on pricing remaining robust all season.
“We think that’s realistic in the light of the current slowdown in world supply and strong demand from our key markets,” says chief executive Leon Clement.
“But as always, these forecasts are based on the best information available to us and we are recommending that our farmers remain cautious in the face of geopolitical and economic uncertainties. We will continue to assess movements to ensure our dairy farmers are kept up to date.”
Synlait also said its forecast base milk price for the 2018-19 season has increased from $6.25/kgMS to $6.40/kgMS.
Meanwhile, Morrinsville company Tatua – with just 107 suppliers and often the leader in its milk prices to farmers -- paid $8/kgMS for the recently ended (May 31) season.
Tatua is now forecasting a payout of $7.50 for the new season, not including retentions, which last year amounted to 62 cents/kgMS.