Dairy prices should bring some cheer as bankers get tougher on farmers and govt further burdens them

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.

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