{"id":48861,"date":"2022-10-01T12:43:55","date_gmt":"2022-09-30T23:43:55","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/?p=48861"},"modified":"2022-10-03T14:35:27","modified_gmt":"2022-10-03T01:35:27","slug":"sunnier-skies-ahead-for-dairy-farmers","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/markets\/sunnier-skies-ahead-for-dairy-farmers\/","title":{"rendered":"Sunnier skies ahead for dairy farmers"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes<\/span><\/span>\n

Two positive auctions along with a strong annual result from Fonterra should keep farmers reasonably positive as winter gives way to spring.<\/p>\n\n\n\n

Those two auctions, which saw prices lift by 4.9% in early September and 2% a few days before the annual result was released, should ease farmers\u2019 nerves after Fonterra finally revised its forecast to $9.25\/kg milk solids following months of mostly falls in prices.<\/p>\n\n\n\n

NZX dairy insights manager Stu Davison says there are now expectations that the market is likely to track a similar path to this time last year.<\/p>\n\n\n\n

\u201cDemand in key markets remains \u2018firm\u2019, but I\u2019m not convinced that the demand is \u2018solid\u2019,\u201d he says.<\/p>\n\n\n\n

Leaning on supply and demand fundamentals again as the Kiwi dairy season rolls on, if New Zealand milk supply doesn\u2019t hit the marks expected of it at the current price points, then the market will likely keep shifting higher, Davison says.<\/p>\n\n\n\n

Westpac senior agri economist Nathan Penny says the result comes against a backdrop of very weak global dairy supply.<\/p>\n\n\n\n

NZ dairy production in July was down 5.5% over July 2021. And anecdotally, production has continued on this weak note over August and into September.<\/p>\n\n\n\n

Fonterra also recently revised its milk collection forecast for the 2022-2023 season down from 1510 million kilograms of milk solids to 1495m kg MS.<\/p>\n\n\n\n

Chief executive Miles Hurrell says there is a reduction in milk collections with weather conditions experienced in some parts of the country meaning a slow start to the season with flooding in the Far North and top part of the South Island.<\/p>\n\n\n\n

Rabobank\u2019s Global Dairy Quarterly report estimates production for this season will be up marginally, by 1.5% and 2%, but noted the risk that wet winter conditions may still set a weaker tone for the rest of the season.<\/p>\n\n\n\n

Penny expects production to rebound this season, after the 4% drop over the 2021\/22 season.<\/p>\n\n\n\n

\u201cBut with this in mind, there are now clear downside risks to our production forecast,\u201d he says.<\/p>\n\n\n\n

\u201cIn contrast, the positive result firms up our 2022\/23 milk price forecast of $9.25\/kg. If anything, the lift in prices has come earlier than we had anticipated.<\/p>\n\n\n\n

\u201cThat, coupled with the deteriorating New Zealand production outlook and the very supportive level of the New Zealand dollar, does bring some upside risks to our forecast into play.\u201d<\/p>\n\n\n\n

Rabobank senior agricultural analyst Emma Higgins says she expects the other major milk producers to return to growth in the final quarter of the year, ending five consecutive year-on-year quarterly declines.<\/p>\n\n\n\n

But that growth will be modest at best.<\/p>\n\n\n\n

\u201cHigh production costs, weather risks and emerging feed shortages will help keep the global milk supply in check.\u201d<\/p>\n\n\n\n

It is still extremely wet in many regions with the only positive being that warm soil temperatures have kept the grass growing. The rains should also have replenished a lot of the water tables that were depleted from last year\u2019s drought.<\/p>\n\n\n\n

With another La Ni\u00f1a weather pattern predicted for summer, there could be more rain and easterlies over spring and potentially another extremely hot and humid summer.<\/p>\n\n\n\n

But this is unlikely to result in a significant lift in production above what is already forecast.<\/p>\n\n\n\n

Input prices are staying high and that, along with ongoing labour challenges, means farmers will be unable to turn on the feed tap like they may have been able to do in the past.<\/p>\n\n\n\n

Fonterra\u2019s recent downgrade of its forecast to $9.25\/kg MS means that the margin between profit and loss is coming under increasing pressure, especially with break-even prices sitting at $8.44-$8.50\/kg MS.<\/p>\n\n\n\n

It would affect milk production if farmers reduced their supplementary feed usage to try to peg costs.<\/p>\n\n\n\n

Hurrell touched on it when announcing the co-operative\u2019s annual result in late September.<\/p>\n\n\n\n

Fonterra retained its $9.25\/kg MS midpoint forecast and forecast a normalised earnings guidance of 45-60 cents per share.<\/p>\n\n\n\n

It was a great set of results with a \u201cfantastically high milk price\u201d, he said, but while \u201cthat\u2019s great for our farmer owners \u2026 at the same time they are experiencing significant inflationary pressure on farm\u201d.<\/p>\n\n\n\n

\u201cThe longer-term outlook for dairy remains positive. And in the medium-term, we expect to see an easing in some of the geopolitical events, namely the covid-19 lockdowns in China and the economic challenges in Sri Lanka.\u201d<\/p>\n\n\n\n

If he\u2019s right and that forecast stays up, it should be another profitable season for farmers.<\/p>\n","protected":false},"excerpt":{"rendered":"There are now expectations that the market is likely to track a similar path to this time last year.\n","protected":false},"author":20,"featured_media":47443,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"Fonterra chief executive Miles Hurrell was pleased with the co-operative\u2019s performance when its annual financial results were released \u2013 though he also acknowledged the tough inflationary pressure farmers are facing.","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[2],"tags":[28,110,97],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t