Westpac has slashed its farmgate milk price forecast for the 2023-24 season by $1.10 down to $7.80/kg milksolids.
Senior agri economist Nathan Penny, who had been very bullish previously with a near-$9 expectation, said the main reason for hacking the forecast is ongoing sluggishness in the Chinese economy.
“The downward price trend in global dairy prices has been sustained much longer than we expected.
“They have fallen at 10 of the 14 Global Dairy Trade auctions held this year, now down 22% in annual change terms.”
New Zealand milk production in April and May set records for both months and the autumn surge was enough to offset a slow spring and bring the 2022-23 season in ahead of the previous season.
Penny still expects dairy prices to recover late this year or early next year but they will remain low during NZ’s spring peak.
He said Fonterra would likely lower its price forecast range by the end of August, but also commented that the dairy season is still young and a wide range of milk prices are possible.
Westpac’s latest $7.80 prediction will be below break-even for many dairy farmers, faced with average operating costs of $6.80/kg and debt servicing of $1.50.
“Farm balance sheets are generally strong and with experience gained during previous downturns, we expect farmers are well-placed to manage through the milk price cycle,” he said.