Forecasting stabilised dairy prices

DairyNZ senior economist Matthew Newman looks over the body's 2013-14 economic survey. Photo by...
DairyNZ senior economist Matthew Newman looks over the body's 2013-14 economic survey. Photo by DairyNZ.
Dairy prices posted a 1.1% fall in this week's GlobalDairyTrade auction but appear to be stabilising, economists say.

While it was the sixth consecutive decline, it was also the smallest fall during that period.

Whole milk powder prices eased 1.7% while skim milk powder fell 2.3%. Anhydrous milk fat and butter prices lifted 2.4% and 1.6% respectively.

ASB rural economist Nathan Penny expected prices to begin recovering over the second half of the year.

DairyNZ's latest economic survey showed dairying was more successful and critical to the economy ''than ever before'', but it had become a tougher and riskier business, DairyNZ chief executive Tim Mackle said.

New rules and regulations to farm within nutrient limits would bring more challenges and put extra pressure on the industry's ability to stay competitive internationally, he said.

Despite economic and climate challenges and new environmental requirements, farmers had increased profitability, particularly in the past five to six years, by farming more efficiently, Dr Mackle said.

Farmers were producing at least twice as much milk per hectare compared with 50 years ago, the survey showed.

DairyNZ senior economist Matthew Newman said volatility of milk prices had been a big feature since the late 1980s.

While farmers had made farm system changes to cope with that, farm affordability had not changed much. However, there was now more diversity in the way farms were run.

Farmers were operating with higher levels of debt, with interest payment costs that had doubled in the past 10 years despite the record low interest rates.

That was an area of concern as it meant an additional 60c-70c kg/ms in revenue was required to meet the extra interest payments, Mr Newman said.

Westpac senior economist Anne Boniface did not think the divergence between the currency and commodity prices could persist indefinitely.

However, the continued strengthening New Zealand dollar had led the bank to shade down its payout forecast for the current season from a milk price of $8.65 to $8.50. For now, it was sticking with its $7.10 forecast for the 2014-15 season, she said.

ASB has revised down its 2015 season farmgate milk price forecast from $7.80 to $7.

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