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BNZ economists raise their forecast farmgate milk price to $9.75 on the back of buoyant global prices and a dip in the value of the NZ dollar

Rural News / news
BNZ economists raise their forecast farmgate milk price to $9.75 on the back of buoyant global prices and a dip in the value of the NZ dollar
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Source: 123rf.com

A farmgate milk price of "close to $10" is possible if product prices remain around current levels for the remainder of the season, according to BNZ economists.

In the latest BNZ Rural Wrap, senior economist Doug Steel said he had raised his farmgate milk price forecast to $9.75 per kilogram of milk solid (kgMS).

He noted that there were further gains in prices in the latest GlobalDairyTrade pulse event.

"Meanwhile, the NZD [NZ dollar] has dipped, and we have revised down our NZD forecast post the US election result, which is also supportive to milk prices in NZ," Steel said.

Earlier this week giant dairy co-operative Fonterra raised its official milk price forecast range to $9-$10. If the 'midpoint' of that forecast were to be achieved - IE $9.50 -  it will be a record, beating the $9.30 paid in the 2021-22 season.

Steel says, however, that as positive as the news is, "it is notable that even if a record milk price is achieved this season, it is unlikely to be a record in inflation-adjusted terms".

"On-farm costs have increased significantly over recent seasons. On our calculations, a nominal milk price of about $11.50 would be required this season for a record to be achieved in real terms.

"That looks like a stretch too far, but it is not to deny a decent milk price this season is becoming more and more likely."

Steel says another factor of note is the fact that more NZ milk is being made.

"Importantly, in the past, a high milk price has often been associated with weak NZ milk production. Not this year.

"NZ milk supply has generally had a strong start to the season, notwithstanding some very challenging conditions in the south. NZ milk production season-to-September is up a strong 6.5%. While that above-last-year performance is likely to slow as the season progresses, full season output is expected to be well up on a year earlier."

Steel says strong pricing and higher volumes will generate significant revenues for the dairy sector.

"Our current projections show dairy sector revenue associated with this season’s milk to lift by over $3 billion compared to the previous season. There are likely some holes to fill from a tighter previous season. But more cash gives farmers options. It is good to have them."

He says, however, that while "positivity currently prevails",  so do many risks. This includes how the second half of the NZ dairy season pans out and its potential influence on global prices.

"We are also wary of the possibility that at least some of the current dairy product price strength is associated with buyers lifting inventory levels ahead of potentially significant changes to US tariffs and possible flow on effects. If nothing else, such factors suggest some caution in blindly extrapolating current price strength into subsequent seasons.

"More generally, and not just for dairy, there is a lot of focus offshore with significant attention now on the global economic outlook – post [Donald] Trump winning the US election. At the same time, we should not lose sight of NZ recently signing free trade agreements with the Gulf Cooperation Council (GCC) and the United Arab Emirates (UAE) and their expected positive contribution to NZ trade when they come into force," Steel said.

This is the dairy industry payout history.

Dairy prices

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7 Comments

White gold.....

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3

On farm cost still pretty high. We will see how the season pans out.

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2

Now we just need the interest rate to drop a little more.

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Just to put things in perspective the difference between this years projected milkprice and last years will bring in  extra revenue near equivalent to either our wine or kiwifruit industries. This is a big deal for our economy.

 

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1

Another perspective would be last seasons payout started at $9, dropped to $6.80(?), finished at $7.83.

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0

Fully agree, but hardly gets the celebration it deserves

 

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1

How much of it is actually spent in NZ helping to create jobs. It’s probably spent overseas or dumped in a bank thus creating no economic activity

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