Lockdown changes to come just in time for Moving Day. Softness in dairy prices has industry on edge. Saleyard lockdown starting to cause cascading issues

Most interested persons will have seen the latest Global Dairy Trade auction results by now and probably wincing at the -4.2% drop in the weighted average price. This is the largest drop since February when there was a -4.7% fall.

The milk powders showed real weakness with SMP falling -4.9% and WMP -3.9%. Butter wasn’t far behind at -3.6% while cheddar has a small lift with +1.9% Cheddar has been rising steadily since November 2019 when it was at US$3,609 to the current $4,480. WMP has dropped below the US$3,000 mark, which economists seem to like it above, to US$2,707. Not great but well above the US$1,590 which was the low point of August 2015.

The concerns at the moment are where prices are going to end up for next season.

Fonterra will be in deep thought (we hope) weighing up what they accept for forward contracts. The current fall in prices which are driven by most of the globe going into  the covid-19 recession may affect some countries more than others and some countries (that is, China), despite having their lowest growth quarter since 1976 currently and their outlook also being bleak as their largest market, the US, look as though they are going to be in an economic bind for sometime to come, may still be in the market for large amounts of milk products.

It is likely they may reduce other areas of consumer spending before reducing spending on milk products and food in general. However, a lot of New Zealand’s milk goes to other places and some of these rely on oil production to generate their wealth and that is looking extremely shaky at the moment.

Fonterra suppliers are also closely watching future price contracts and according to NZX are very keen to lock in prices. “Fonterra's fixed milk price of $6.32/kg for next season was massively over-subscribed in April and farmers who applied were allocated only 13% of their target quantities. The co-operative received 57.8 million kilos in applications for the 7.5m kg available from 756 farms or about 7.5% of the total farm shareholders.”

An earlier contract in March offering a $6.80 (less 10cents costs) was also oversubscribed, although at a lesser rate, with applying farms being allocated 33% of desired amount. The next allocation comes out May 11th and will most likely have the price reduced again. However, with some analyst  predicting price ranges of  between $5.60 - $6.50, well down from the current $7.30 estimates for this season. This season’s allocations are in marked contrast to last year when they were undersubscribed by over 33%. Although Fonterra is putting up considerably less volume allocations onto the market indicating the uncertainty international purchasers have in future prices.

The Minister for Primary Industries statement that share milkers will be able to move between farms on “Gypsy Day” was a bit of a no brainer. If we are still under an Alert level 3 or greater at that time (end of May) then something has seriously gone wrong with the virus controls. However, it has provided a little certainty.

The situation around saleyard selling is being clarified with most now saying they are still shut down. The major Canterbury ones have provided additional information saying that they will not be open until the country goes to Alert Level 2.

Talking to a couple of the truck companies (in the attempt to get some lambs moved finally) they expressed some concern that the opening of saleyards was getting close to coinciding with when dairy sharemilkers are also moving herds between farms and it is likely there is going to be some pressure on truck companies to satisfy everyone. If this opening schedule is how things finally pan out saleyards will have been closed for seven weeks which is starting to ask a lot of livestock farmers to work to.

Looking at the Fed Farmers web site the picture around saleyards is less clear and provides the possibility that if there was a will saleyards could open. “Businesses providing support services to the primary sector provided they can operate safely, including (but not limited to):”

• “Stock sales, wool sales and auctions (public must not attend and they should be run online where possible.”

Regardless of when the yards open, with works able to increase throughput next week at least some demand will start to increase.

At a personal level it can’t come soon enough with winter supplies so far being managed to be avoided to be eaten into but I suspect at some time there will be some opening of new gates and hoping for a mild winter.