The sun may be shining again on NZ’s dairy industry: spirited bidding at the latest global dairy trade auction backs up Fonterra’s move last month to lift the projected payout range to $6.55-$7.55 kg/MS.
The average GDT price rose 3.7% to $US3446 a tonne, with the key products WMP up 3.6% to $US3254, and SMP 6.7% to $US2924.
WMP prices, after dipping mid-year, have remained above the important $US3000/tonne level since July. ANZ in a market commentary noted the auction outperformed expectations. Futures prices have steadily lifted since the previous GDT event in October.
Milk powder was strongly sought after and that will underpin prospects the milk price will reach the highest level since 2014.
The outlook is bright enough to suggest Fonterra, after two seasons when it reported bottom-line losses, is returning to profitability.
Analysts rate quite strongly the odds of the milk price topping $7kg, given the exchange rate has moved in favour of exporters.
Down on the farm, the tendency may be to keep the lid on budgets a bit longer before contemplating new investment.
Farmers will be only too well aware that the country’s big banks, facing the prospect of new capital requirements under consideration by the Reserve Bank, are applying the squeeze to farm loans.
That, plus the government’s emissions pricing and freshwater policy, has left farmers believing they are being unfairly targeted.
Calculations released by the Ministry for the Environment estimate a lowland dairy farm will have to absorb an extra $93,500 of costs over the next 10 years to meet freshwater requirements — equivalent to 0.8% of that farm’s revenue each year.
Then there has been the impact of the disease Mycoplasma. Bovis on rural morale.
This is why it is vital the upward swing in the milk price persists and the dairy industry overcomes the negativity it may feel as a result of an unsympathetic government or harsh banking action.
NZ more than ever needs a confident, expanding dairy industry. Let’s hope farmers, instead of battening down the hatches, look rather to new techniques to improve their pastures, their husbandry, and their production.