Dairy Report: Small rise in dairy prices underpins positive market sentiment for sector. Analysts see further gains. Risks include trade ruction fallout and biosecurity

By Guy Trafford

The final Global Dairy Trade auction of the season took place over Tuesday night and continued on the stable ride being experienced this year with a +1.9% rise overall.

All the products monitored by interest.co.nz lifted although Whole Milk Powder only a +0.2% rise, but at least not a drop. Cheddar had the greatest lift of +4.4% and butter +2.4% and Skim Milk Powder +3%.

Having both butter and SMP rise together will put a smile on processors' faces as SMP is the ‘by-product’ of butter and if butter lifted but SMP fell it would be a hollow victory for butter

Thoughts now turn to next season and predictions are starting to come out. Westpac, who normally aren’t too far off the mark, are predicting a $6.40 farmgate price. This is in conjunction with a 68 USc Kiwi dollar later this year (and at 68.6 at the moment look to have this right) and 64 USc later next year. $6.40 with 64 USc seems a mite conservative to me, the $6.40 may transpire but with the US on a bit of a wave at the moment there looks to be some potential downsides going forward with Trump doing what he can to upset world trade.

How the negotiations with China go may underpin what happens next. These seem to have hit a stalemate with the first real round of talks being completed last week without any breakthrough. Both countries hold high stake card hands which they could play, the US by imposing heavy tariffs on Chinese goods and China holding US$1.17 tln of US bonds which it could sell off and drop the US$ like a rock. End of May is meant to be reckoning time so yet again we wait on politicians.

A2 must be scratching their collective heads today, they announced a 70% increase in revenue for the 9 months end March 31st and the share price went into free fall dropping -20% at one point before recovering to sit around -14%. Analyst belief was that there was a collective bout of profit taking on top of the 70% lift not meeting expectations. Hard to please some.

The budget is out today (Thursday), farmers are not likely to be expecting too much except perhaps additional funding for bio-security.

Regarding mycoplasma bovis, judging by comments from Minister for Agriculture that he had just met with industry and they were discussing the option of "phased eradication and long-term management" of the disease, indicates that that option has not been a priority option up until recently. If this is so, it is very disappointing that those in the decision making roles in NZ bio-security have not had the foresight to have begun these discussions months ago. It wasn’t as though farmers and others were not predicting this outcome.

An interesting side issue arguably attached to this; the funding for rural mental health has been cut. This at a time when farmers are having to come to grips when a multitude of issues and none of them particularly positive. Hopefully farm returns remain the one area where things are good.