Sunday, March 3, 2024

Things not as bad as feared

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Dairy farmers can’t yet breathe of sigh of relief but they can stop holding their breath. The air is now clearing on what post-covid markets look like and the picture isn’t as bad as many feared.
Fonterra chief executive Miles Hurrell says it was good to kick the year off with another strong forecast farmgate milk price range.
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There was good news at the June 16-17 Global Dairy auction with prices up 1.9% overall and only one product falling with butter down just 1%.

The key whole milk powder price was up 2.2% but even better news was the 4.5% leap in powder for August shipment, giving confidence in the medium-term outlook.

Fonterra chief executive Miles Hurrell tweeted the just under $100 million of product sold at the auction tells only part of the story. 

“Some of our contracts are linked to GDT in some way so the upward movement supports future contracts,” he said. 

That must give heart to Fonterra’s farmers and those supplying companies whose prices are linked to the co-op’s. 

It’s good news for the economy too in the wake of figures showing market prices for fruit and meat have held up so far and that primary sector exports are predicted to increase by $1.7 billion this year.

However, as one wit once said prediction is a tricky business, particularly if it involves the future.

There’s still a lot of uncertainty and not enough time since the covid outbreak to see any patterns or trends we can use to draw accurate maps.

There are new cases in China that might or might not be from a mutant covid strain and the United States appears to be experiencing a resurgence as it relaxes restrictions.

Europe seems calm but who knows what might happen in South America and Africa.

We also can’t predict the outcome of rising unrest in America and the flow-on effects in other countries and even President Donald Trump probably doesn’t know how he’ll respond to that or to rising tensions on the Korean border or his continuing war of words with China.

We can see the uncertainty at home where our dairy analysts and economists are generally a bit more cheerful and increasing their farmgate milk price predictions but they are still widely split on where the real money will land. Their predictions are all within Fonterra’s wide range of $5.40 to $6.90 but go from $5.75 to $6.62.

How much money ends up in farmers’ pockets depends on another uncertainty, the exchange rate. We know Fonterra hedges its currency bets but we don’t know the details.

ANZ economist Susan Kilsby blames the exchange rate as a big factor in her miserly $5.75 prediction but not all currency dealers agree with her view it will remain high.

Another big unknown is how much milk we will produce this season.

Reports from freezing works indicate a big cow cull this year but there are no statistics separating beef from dairy cows so we will have to wait to find out just how many animals are left on dairy farms.

Then there’s the feed supply. Will we get enough rain and grow enough feed come spring.

Those two imponderables might be a swings-and-roundabout argument. If production is down prices might go up and vice versa.

At grassroots level we can get an idea of farmer sentiment by looking at futures prices. The September 2021 milk price futures contract settled at $6.43/kg MS on June 18, up 13 cents from a week earlier and up 21c in a fortnight. 

Looking further out the September 2022 milk price futures contract has also lifted. On June 17 it was up three cents at $6.30/kg MS with 236 lots traded. The September 2020 contract remains at $7.22/kg MS, having been untraded since mid May.

Where they stand

Predictions for the 2020-21 farmgate milk price:

Fonterra $5.40 to $6.90

NZX $6.62

ASB $6.50

Westpac $6.50

Rabobank $5.95

ANZ $5.75

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