Milk production up, prices dip

Better growing conditions over summer than during a bad spring is likely a factor in the dip of 3.2% in the GlobalDairyTrade auction last week, economists say. By Pam Tipa.
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Fonterra has revised its 2016-17 season milk collection forecast to a 5% decline on last year, up from the previous forecast of a 7% fall.
Whole milk powder (WMP) prices at last week’s auction fell 3.7% to $3189/t, with fat-based products continuing to outperform, says Westpac economist Sandra Drought.
While WMP prices have fallen to the lowest level since October last year, they are still 55% higher than mid-2016.
“Overall, dairy markets have found themselves in a much more balanced position this year, as last year’s retrenchment in global supply begins to taper off, while demand has remained steady.”
Drought says Westpac expects global prices to ease a bit more in coming months as the stabilisation in global supply materialises.
“We continue to forecast a farmgate milk price of $6.20/kgMS this season, and have pencilled in $6.50/kgMS for next season,” says Drought.
“With most of this season’s production already sold, there would need to be a sharp decline in prices to create material downside for this season’s forecast, but next season’s forecast is a different story.”
She says the NZ dollar has been resilient this year, with the NZD/USD now about 71 cents. But with rate hikes on the cards in the US this year and next, the US dollar is expected to strengthen, and push the NZD/USD lower.
“We’re forecasting the NZD/USD to fall to 67 cents by year end, and track a bit lower in 2018,” she says.
In NZ, production conditions in most regions have been much more favourable over the past few months following a “horrid” spring.
“Fonterra’s milk collections in January were down only 1.4% from the previous year, a far cry from the 8.3% decline recorded in October, and losses for the season to date have been pared back to 4.9%.
“And as a result of better conditions, Fonterra has upgraded its forecast for the season’s milk production, from a loss of 7% to 5%. Consequently, they bumped up their expected offerings on the GlobalDairyTrade platform over the next 12 months by 1.6%, which looks to have been a key catalyst behind last week’s fall in prices.”
The trends in European production are crucial to the outlook for global supply, she says.
“With farmgate prices rising in recent months, we should see some supply response as the year goes on, although environmental constraints especially in the Netherlands may hold back some production. Large stockpiles of skim milk powder also need to be released onto the market at some stage.”
ASB senior rural economist Nathan Penny says an improved NZ production outlook led to the price decline last week.
Nationwide production for all dairy companies is forecast to decline 3% on last season – a 5% decline was previously forecast.
“Moreover, this season’s weather risks have largely receded. With recent rain in most parts of the country and autumn around the corner, the improvements in production are likely to be maintained over the remainder of the season,” he says.
“As a result, we expect prices may soften further over coming auctions. Over a longer period, we expect WMP prices, for example, to remain well-supported in the low US$3000s.”
No change to forecast payout
Fonterra last week said it was sticking to its forecast farmgate milk price of $6.00/kgMS announced in November.
When combined with the forecast earnings per share range for the 2017 financial year of 50-60 cents, the total payout available to farmers in the current season is forecast to be $6.50-$6.60 before retentions.
Fonterra is required to consider its forecast farmgate milk price every quarter as a condition of the Dairy Industry Restructuring Act.
Fonterra chairman John Wilson says the cooperative is confident this forecast is at the right level, following the 75 cent rise in its forecast farmgate milk price in November last year.
“The global outlook for dairy remains positive. Since November, the global market for commodity dairy products has remained relatively balanced and we expect global prices to continue to hold or gradually increase over the back half of this season, a view shared by most global analysts,” says Wilson.
Fonterra also announced that it would increase the monthly advance rates it pays to farmers. The rate for February, paid in March, has increased to $4.85/kgMS.
“Our confidence in the global dairy market at this stage of the season, combined with the strength of our cooperative, has enabled us to increase the monthly advance rates more than we normally would at this time of the year,” says Wilson.
Fonterra’s Global Dairy Update for February reported the co-op’s New Zealand milk collections were showing signs of recovery. Originally expected to be down 7% for the season, the NZ collections forecast has now improved to a 5% decline on last season.
 
Source: RuralNews
Link: http://www.ruralnewsgroup.co.nz/item/11514-milk-production-up-prices-dip
 

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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