The New Zealand economy, although battered by the Covid-19 pandemic, has moved into 2021 in better shape than anyone might have predicted just six months ago.
To a degree this has been due to the continuing vibrant performance in the export sector particularly by the primary industries. This week there was a fresh surge of confidence within that sector because of the signal from the big dairy co-op, Fonterra, in lifting its milk payout forecast.
Fonterra now expects to pay farmers between $6.90-$7.50kg/MS. That is up 20c a kg from its previous forecast range of $6.70 -$7.30.
Analysts had seen this coming and as Point of Order has contended in recent posts it is the message the rural regions needed as they made plans for the coming year.
Given the global demand for dairy products, the mood down on the farm may now be confident enough to ensure investment in new technology and other moves to higher production goes ahead. Certainly the sunnier outlook should have dissipated the cloud of pessimism which had enveloped elements within the industry.
Morale within the industry had taken a knock because of the continuing attacks on it by lobby groups like Greenpeace, which hammered it for “dirty dairying” and “polluting the atmosphere”.
Fonterra suppliers had also been dismayed when the co-op racked up losses, after investments in some overseas operations didn’t produce the results expected.
Now under its relatively new CEO Miles Hurrell, the co-op is re-establishing itself as a global leader. That’s something which should be celebrated not just in the cowsheads but in rural regions generally — and in the cities as well.
As a result of the milk payout revision, Fonterra will be pumping $11 billion into the rural regions, up from the earlier estimate of $10.5bn.
Hurrell said the lift in the 2020/21 forecast farmgate milk price range was a result of strong demand for dairy, which is demonstrated by the continued increase in Global Dairy Trade (GDT) prices since the co-op last revised its milk price at the beginning of December.
“In particular, we’ve seen strong demand from China and South East Asia for whole milk powder (WMP) and skim milk powder (SMP), which are key drivers of the milk price”.
Hurrell said with NZ farmers now through the peak of the 2021 milking season, the impact of any changes in global market dynamics was reducing and its view of the season is firming up.
“However, we are continuing to keep a close eye on a number of factors. These include NZ weather conditions, expected challenges from further waves of Covid-19 and increasing milk production in the Northern Hemisphere.”
At the latest GDT auction dairy prices hit their highest level in nearly seven years. The average price at the fortnightly auction rose 1.8% to $US3614 a tonne. This came after a 4.8 % rise at the last auction two weeks ago.
Fonterra will provide more detail on its overall performance and full-year earnings guidance when it announces its 2021 half year results on Wednesday, 17 March.
Other dairy exporters should be riding the same strong global demand as Fonterra, and given they command about 20% of the country’s milk production, it underlines the vital importance of the dairy industry to the national economy