Whole milk powder prices bode well for profits

Dairy farmers could be looking at another record year for profit in 2013-14 after a 4.9 per cent rise in GlobalDairyTrade prices was recorded at the overnight auction, banks said.

Prices for whole milk powder - the most important line for New Zealand producers - were up 7.7 per cent from the the last auction at US$5058 a tonne.

ANZ Bank said prices gained as buyers scrambled to refill their inventory after last summer's drought and a seasonal low in New Zealand supply, which would put upward pressure on Fonterra's $7 per kg of milksolids milk price payout forecast for this season.

"The lower New Zealand dollar and higher-than-expected prices will raise the prospects of Fonterra lifting their initial May forecast of a $7 per kg milk price for 2013-14," ANZ said in a commentary.

"If mother nature plays nicely and farmers remain disciplined with their expenditure, then this could deliver a new record for profit in 2013-14," the bank said.

The Bank of New Zealand said the auction was "a very positive result" given the already high level of prices.

"Restricted offshore dairy supply remains a key driver," BNZ said in a commentary.

"The upshot is there is now clear upside risk on Fonterra's current season milk price payout," the bank said.

This morning's GDT dairy auction gave the New Zealand dollar a lift, with the currency last trading at US78.95c from US78.28c in late local trading on Tuesday.

But the Kiwi remains well down from this year's peak of US86.75c in April and its record post float high of US88.43c in August 2011.

Rabobank, in its latest quarterly rural confidence survey released earlier this week, said the sharp drop in the value of the New Zealand dollar and a swift end to last summer's drought had significantly improved the outlook for farmers.

 

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