‘Cautious approach’ to price forecast

Federated Farmers South Canterbury Dairy chairman Ad Hendriks reckons farmers will be cautious...
Federated Farmers South Canterbury Dairy chairman Ad Hendriks reckons farmers will be cautious about upbeat payout forecasts for next season. PHOTO: TIM CRONSHAW
Canterbury dairy farmers are sitting tight rather than banking on signals for a mid-$8 payout next season.

Most banks have pitched a likely milk price between $8.20 and $8.50 per kilogram of milk solids for 2024-25.

Rabobank has just raised its projection to $8.40/kg on the back of little global milk supply growth.

Westpac economists continue to see no change in the near term for their expectations of $8.40/kg for 2024-25 and $7.90/kg for this season.

This stacks up alongside ANZ’s forecast for next season, also based on low global supplies, of $8.50/kg. The bank revised its farm-gate milk price forecast in February for this season by 15c/kg to $7.85/kg.

Similarly, BNZ nudged up its forecast for this season to $7.90/kg and expects the 2024-25 milk price to be up to $8.20/kg.

Fonterra’s range is at a forecasted $7.50/kg to $8.10/kg for this season and pulse rates slowed when it began recovering from a $6/kg to $7.50/kg range last August.

The big co-op has yet to put out its starting point for 2024-25.

Federated Farmers South Canterbury dairy chairman Ad Hendriks said the 2024-24 forecasts could be in the right direction based on the last Global Dairy Trade (GDT) result.

"But there’s a long way to go. Probably having that opening figure gives some confidence to farmers, but I think they will still be very careful because the costs don’t seem to have relieved that much. There’s going to still be a cautious approach for most farmers, especially because they get all the noise from the banks ... and there’s a lot happening in the international economic world out there."

He said there seemed to be concern about China’s milk production holding up and the big milk buyer needed to re-enter the market at scale for payout forecasts to firm up.

"It only takes a little bit of extra production in the world or a war starting somewhere and that can throw things a bit."

Mr Hendriks said most banks had their forecasts for this season at the high end of Fonterra’s expected milk price.

Rabobank senior agricultural analyst Emma Higgins sees a milk price forecast of $8.40 a kilogram...
Rabobank senior agricultural analyst Emma Higgins sees a milk price forecast of $8.40 a kilogram of milk solids for 2024-25 based on modest global milk growth. PHOTO: RABOBANK
"That would be good because [the break-even point] is probably between $6/kg and $6.50/kg and that’s before they stop paying interest rates and whatever. If you have a bit of a decent mortgage with the higher interest rates at the moment you are probably looking at between $1/kg to $1.50/kg. Add that into the equation and you’re getting close to $8/kg. So $8.40/kg [next season] would mean there’s something falling out the other end even if costs stay where they are. There are so many moving parts and there’s still a long way to go, so at this point in time it’s hard to say what’s going to happen."

Rabobank predicts milk production from the main global export areas to expand only modestly over the next few months before gaining some momentum towards the end of the year.

Senior agricultural analyst Emma Higgins said low profitability over the past year had led to a decrease in dairy herds in key regions such as the United States and South America.

Weather changes had reduced milk output in recent weeks, with less rain in New Zealand and more rain in Europe, she said.

“And this subdued global milk supply growth should help underpin a continuation of the dairy market recovery and an improvement in milk prices for dairy producers in most regions around the world.”

However, she warned the recovery would not be smooth.

“Global demand-recovery signals are mixed, and consumers’ purchasing power remains under pressure."

She said the expectation that Chinese milk production would grow at a quicker rate was a challenge to the bank’s latest milk price forecast for the coming dairy season.

A milk price of $8.40/kg would be broadly profitable at a national level, but budgetary pressures were likely to remain for local producers, she said.

Domestic milk production this season could end up to 1% lower than last season as a result of a lack of rainfall in northern and eastern areas in both islands, putting pressure on feed.

Mr Hendriks said his farm was 4% to 5% up on last season’s milk production with an El Nino usually meaning good production for local farmers as long as they had good water access.

However, farmers on the Kakahu irrigation scheme had found irrigation difficult as they faced restrictions to avoid silt entering the Kakahu River.