1492481640762 - Rabobank expects stable dairy prices to give farmers healthy margins

Rabobank expects stable dairy prices to give farmers healthy margins

There are greener pastures ahead for dairy farmers after a tough couple of years, Rabobank says.

But dairy prices were not expected to go much higher, meaning farmers should remain cautious.

A report from Rabobank said the country’s dairy farmers were set to “emerge from the woods” after two years of low commodity prices.

The food and agribusiness bank expected dairy farmers could look forward to a favourable upcoming season, even if changes to the farmgate milk price would be limited.

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Fonterra last month confirmed its farmgate forecast price of $6 per kilogram of milksolids (kgMS).

Rabobank dairy analyst Emma Higgins said the $6 price was unlikely to rise for the rest of this season, because the price rally in the last half of last year had been offset by higher than expected production from New Zealand.

There was, however, greater market balance which would maintain prices next season.

“Milk output around the globe continues to remain low.

“While the speed of decline in milk production is slowing, it will take until the latter half of 2017 for volumes available for export to increase.

“On the demand side, we expect a significant uptick in Chinese dairy import volumes across 2017 and this will help to underpin whole milk powder markets.”

Higgins said this was expected to result in a farmgate milk price close to $6.25/kgMS, which would allow New Zealand dairy farmers to emerge from a tough couple of years.

Another profitable season, which a $6.25/kgMS price would provide for most, was crucial to boost confidence in the sector.

At the same time, feed and fertiliser prices were expected to remain comparatively low.

“Farmers do need to be conscious of the risk that the equation may play out less positively.

“Keeping cost control front of mind for the 2017/18 season will help both to maintain positive margins at improved milk prices, but also to maximise business resilience.”

Higgins said there were a number of risks to all of this as well, mostly relating to political uncertainty in Europe and increasing milk supply from the same region.

On the other hand, however, there was the possibility of a sharp increase in dairy exports to China.

“Chinese production has been struggling to keep pace with our low consumption growth forecast of one per cent and stock levels are now very low.

“We see import growth of 20 per cent year-on-year as a possibility for 2017, which would barely restore inventory levels.”

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