Bank economists and farming leaders are predicting a largely unchanged milk price when Fonterra announces its opening forecast for the 2018-19 dairy season in late May.
The milk price for the 2017-18 season is at $6.55 a kilogram of milk solids, a five cent lift from last year’s opening forecast of $6.50, announced last May.
ASB Bank says high butter prices should ensure a “solid” start to the new season and set its opening forecast at $6.50/kg.
ANZ had a more conservative forecast and predicted an opening forecast of $6-$6.25/kg, commenting it would be “unusual” to achieve three years of a milk price in the low-$6/kg range.
“At this stage it’s difficult to see a catalyst for a breakout of milk powder’s recent well-defined ranges that would support such an outcome either way.”
Based on GlobalDairyTrade prices and dairy futures prices of about US$3150-$3300/tonne, Federated Farmers dairy chairman Chris Lewis predicted a range between $6.30-$6.70/kg.
In the last year prices commodity prices had ranged from US$2800-$3300/t, with the exchange rate being the big unknown factor.
“Based off that in the last 12 months, it’s averaged just over US$3000/t and in the next six months it’s looking it could be US$3150-$3200/t.”
“I’m guessing like everybody else because I don’t know what the US dollar is going to do.”
If the mid-$6 forecast eventuates, it would be the first time since November 2016 it had stayed at $6 or higher. The stability would be good news for farmers because it gave them confidence to make forward plans for their businesses, he said.
“It also sends the right signals to the young people coming into farming a few of who got a hammering when there was a $4/kg payout.”
BNZ in its latest Rural Wrap report lifted its forecast for next season to $6.10/kg, up from the $5.70/kg it set in October last year.
The banks says the figure sits within a wide range of possible outcomes when the 2018/19 season’s milk price was finalised in about 18 months’ time.
The price prediction is underpinned by the expectation that whole milk powder prices will range between US$2900/t ($4003) and US$3300/t ($4555) over the next year.
Westpac in its latest fortnightly agri-update, said the relative stability in GlobalDairyTrade auctions supported its view that dairy markets appeared to be broadly balanced.
“While we expect further increases in global milk supply to put downward pressure on dairy prices in the coming months, we continue to expect this adjustment to be gradual.”
The bank forecasted an opening milk milk price of $6.50/kg.
During last week’s GDT auction dairy prices lifted by 2.7 per cent to reach an average of US$3587 ($4888) per tonne.
In the first price lift in four auctions since early February, all product categories increased with the key product of whole milk powder up 0.9 per cent.
Skim milk powder was up 3.6 per cent, butter 2.9 per cent, anhydrous milk fat 5.3 per cent, rennet casein 3.1 per cent and lactose jumped 14.8 per cent.
By: GERALD PIDDOCK