ANZ rural economist Con Williams said the official view was the payout would be $4-$6/kg but he was opting for a price towards the bottom of that range.
«If things turn out better than expected, then great,» he told farmers and rural professionals in Palmerston North. «But the official view is $5.»
He said the new reality would be global trading in the low US$3000 a tonne for milk powder rather than the mid-to-high $3000s of the past.
«Dairy farmers face the challenge of minimising losses now, but not cutting too deeply into long term productive capacity of their business.»
Williams said the bank believed dairy prices would recover, but at the moment the focus was on the survival of dairy farms.
He expected 10 to 20 per cent of dairy-aligned land would be sold. Good quality land, although always in demand, might slip 1-2 per cent in value.
New Zealand milk production would fall a further 3-5 per cent because there were fewer cows and less feed was being brought in.
«Also, the oil price is low, which has a strong link with dairy prices. Sellers of oil are buyers of milk powder.
«But on a positive note, the overhang in China should have cleared by now. And there will be demand from China, but probably it won’t be as strong as it was.»
Williams said while beef prices were high at the moment and weaner sales were strong, a fall was expected. «It is just as much a commodity as dairy.»
New Zealand’s biggest beef market was the United States which had strong incentives to keep beef cows. Grain prices were low, and he expected the cows’ offspring would affect New Zealand prices.
«Brazil is also back in the US market. The US means there are other places they can export, while China is a growing beef market. It could benefit New Zealand, but we don’t know what impact Brazil beef will have.»
He expected sheep meat to make a bit of a comeback because Britain and China took 55 per cent of New Zealand’s sheepmeat.
«We know we have restricting supply, there has been an 8 per cent fall in New Zealand sheep numbers and I think shoulder season lamb will hit $6 per kg and main season lamb to make $5 per kg.
«The challenge for the meat companies, is like Fonterra’s challenge, further processing. For meat it is less frozen and more chilled. With the Shanghai Maling deal with Silver Fern Farms, they are talking about changing from 20 per cent chilled export to 50 per cent.»
He said some of the added value would come back to farmers. «Farmers have always had to cope with volatility, and this will be no different.»
Williams said while many people thought India could be the new China for New Zealand exports, he was not so sure.
«It might be a market in 15 years. The tariff barriers are significant. Domestic producers are well supported, and there is not the infrastructure there to take product to market. Also, wages aren’t strong.»
Williams said some niche markets there could be filled by New Zealand, but India was a long-term market for most New Zealand produce.
«At present tariffs range from 25-75 per cent on food products. Many livestock products are prohibited. The cool chain is fragmented and linked to a largely informal retail network.»
He said Indians also had strong food preferences, which limited opportunities for some products, particularly beef, but other preferences could be created for dairy products, fruit and vegetables.
«Furthermore, while consumers may be familiar with foreign foods in an «eating out» setting, many do not know how to prepare foreign foods at home, which still accounts for the majority of food expenditure.»
Williams said India was an Asian market not open to a wide range of New Zealand products for some years.
Source: Stuff