{"id":5628,"date":"2021-08-30T00:00:00","date_gmt":"2021-08-29T12:00:00","guid":{"rendered":"https:\/\/www.farmersweekly.co.nz\/milk-price-in-a-sweet-spot\/"},"modified":"2021-08-30T00:00:00","modified_gmt":"2021-08-29T12:00:00","slug":"milk-price-in-a-sweet-spot","status":"publish","type":"post","link":"https:\/\/www.farmersweekly.co.nz\/news\/milk-price-in-a-sweet-spot\/","title":{"rendered":"Milk price in a sweet spot"},"content":{"rendered":"Reading Time: <\/span> 3<\/span> minutes<\/span><\/span>

Each month the milk monitor delves into the dairy industry and gives us the low-down on the good, the bag, the ugly and everything in between.<\/p>\n

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Two separate reports released in August have shown how profitable the past two seasons were for the nation\u2019s farmers.<\/p>\n

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DairyNZ\u2019s annual economic survey showed that operating profit jumped 28% in the 2019-20 season compared to the season prior to $2750 a hectare, while milksolids per cow and hectare were at their highest level to date.<\/p>\n

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That\u2019s a fairly impressive effort considering farmers battled drought, covid-19 and expenditure increases.<\/p>\n

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Likewise, AgFirst\u2019s 2021 financial survey painted a similar picture for last season. Farm profit after tax jumped 31% in 2020-21 thanks to a buoyant dairy payout.<\/p>\n

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Countering this was an 8% increase in farm working expenses compared to the previous year from $4.26-$4.48\/kg MS.<\/p>\n

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Those costs had pushed the season\u2019s breakeven payout up from $6.54-$6.94\/kg MS. This is what the payout needed to be for the model farm to be able to pay essential expenditure.<\/p>\n

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That breakeven number averaged $5.98 between 2014-15 and 2020-21, but has crept up to just under $7\/kg MS by last season. That rate of increase, as AgFirst economist Phil Journeaux says, was becoming unsustainable over the long-term.<\/p>\n

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The big positive was that for now, the income being earned is greater than these expenses, the biggest being feed costs, followed by labour, fertiliser and overheads.<\/p>\n

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Similarly, DairyNZ\u2019s survey reported a 21c increase in costs to $5.31\/kg MS in 2020-21.<\/p>\n

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DairyNZ economist Graeme Doole says the jump in costs was not enough to erode profit because farmers were efficient spenders.<\/p>\n

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It will still need a substantial fall in milk prices for it to fall below AgFirst\u2019s $7\/kg MS breakeven figure.<\/p>\n

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Milk prices have petered along with eight auctions in a row of negative results before the mid-August auction that saw a 0.3% lift, with all products rising apart from whole milk powder (WMP).<\/p>\n

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The average across the board price for all goods was US$3827 a tonne, which is historically still pretty high.<\/p>\n

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ANZ\u2019s August Agrifocus says while commodity prices had eased, its forecast of $7.70\/kg MS remained intact.<\/p>\n

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It expected the modest growth in milk output for the rest of the year to help underpin commodity prices at or near current levels. Prices have reduced but are still about USD$200\/t above the USD3600\/t (weighted average) used in its forecast.<\/p>\n

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Rabobank\u2019s Emma Higgins noted that while skim milk powder (SMP), butter and cheese prices had fallen, market fundamentals remained balanced and the bank retained its $8\/kg MS forecast.<\/p>\n

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Westpac dropped its forecast by 25c to $7.75 after the August 3 auction, citing strong NZ autumn milk production combined with the market impact of covid-19\u2019s Delta variant.<\/p>\n

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Locally, that production was up 2.7% for the season, which is also the highest season-on-season increase since the 2014-15 season.<\/p>\n

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The bank\u2019s dairy update said that extra milk that it created reverberated through the markets.<\/p>\n

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\u201cWhole milk powder prices have fallen over 12% since March, coincidentally from the time when New Zealand production started cranking higher. And given the sheer magnitude of the extra milk in-market, it\u2019s not altogether surprising that whole milk powder prices have yet to find a bottom,\u201d agri economist Nathan Penny says.<\/p>\n

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It looks like this season\u2019s peak milk could be critical for shaping the market\u2019s fortunes.<\/p>\n

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He says the amount of volumes of NZ\u2019s spring production will begin to provide fresh impetus for prices in either direction.<\/p>\n

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Similarly, ASB pointed out in its Commodities Weekly that peak milk will be the real test for prices.<\/p>\n

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\u201cWMP losses have been in part driven by stronger production data of late, both in NZ and in the Northern Hemisphere. Now that we are entering the peak months, the strength of NZ production will only grow in importance as a swing factor and could drive a bit of further volatility,\u201d it said.<\/p>\n

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The reduction in volumes being sold on the GDT also lent credence to Fonterra\u2019s claim it is getting strong demand outside that platform.\u00a0<\/p>\n

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Even if the payout fell towards the bottom end of Fonterra\u2019s $7.25-$8.75\/kg MS range, it would still mean a good result \u2013 and be above that $7 breakeven mark.<\/p>\n","protected":false},"excerpt":{"rendered":"Each month the milk monitor delves into the dairy industry and gives us the low-down on the good, the bag, the ugly and everything in between.\nTwo separate reports released in August have shown how profitable the past two seasons were for the nation\u2019s farmers.\n","protected":false},"author":20,"featured_media":5629,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[3],"tags":[],"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