The forecast is a $0.55/kg MS lift on its current payout range of $5.70-$6/kg MS for this season.
In a statement sent out to its suppliers on April 26, the company said it had seen the market recover in the past few months and stability return as demand and supply came more into balance.
“Our expectation is that the market balance will be maintained throughout the new season,” the company said.
OCD pays its farmer suppliers in three settlement periods throughout the season. In period one, running from June-October, it has forecast a milk price of $6.30-$6.60/kg MS, in the second period from November-January 2018 it rises to $6.35-$6.65/kg MS and from February-May, $6.15-$6.45/kg MS.
The forecast surprised and delighted Waikato Federated Farmers president and OCD supplier Chris Lewis.
“It was a relief opening it and seeing a bit of sunshine on the horizon that we could have some stable conditions going forward.
“I think if you’re an OCD supplier or not and just a dairy farmer in general, when you read this forecast a lot of farmers will take comfort in that forecast as things are going to go a little bit better.”
Lewis said chairman Laurie Margrain had given a clear indication of where he thought the company was heading during the last round of supplier meetings in April.
“They are very conservative in what they do and they are very conservative in the way they talk about the market and where it’s heading so not to mislead suppliers.”
The forecast was more buoyant than what he had expected but that could be due to the recent firming of dairy market futures and the GlobalDairyTrade.
“It’s not hard to work out why they have taken this position, he said.
The three settlement period payments indicated that OCD was confident in its short term pricing but had taken a more conservative view over the rest of the season.
The announcement also allowed dairy farmers the opportunity to more accurately plan next season’s budget. It will also put farmers in a positive mood for the Fieldays in June, Lewis said.
They had run their farms very tightly in the past three years and it would allow them the chance to replace run-down equipment and machinery as well as keep paying off debt.
ASB Bank senior rural economist Nathan Penny said OCD’s mid-point forecast of $6.40 was within the ballpark of their expectations for next season where they picked Fonterra’s forecast to lift to $6.75/kg MS during the season.
However the co-operative’s opening forecast would be around $6 when it was announced in mid to late May because it traditionally adopted a cautious approach to prevent the risk of overpaying its farmers, Penny said.
“If I was putting a number out for where I think they will start the season, I think I would be saying somewhere around $6/kg MS. They might be able to stretch that out to $6.10-$6.20/kg MS.
“What we are seeing in the market is something like a balance so when we look to next season we think prices are likely to head sideways.”