The NZX Agri forecast for this season rose 3c to $4.09/kg milksolids and the early indication for next season was $4.45.
As thousands of cash-strapped dairy farmers prepared budgets and talked to their bankers, market commentators said $4.50 to $5/kg should be the vital starting range.
Rural bankers themselves were reportedly not convinced, telling farmers to use lower figures.
For the third season of low prices in a row, on top of losses of hundreds of thousands of dollars that in many cases have already been capitalised into loans, conservative budgeting was now obligatory.
In aggregate, the agriculture sector has borrowed $5 billion more over the past 12 months, at least two-thirds of that in the dairy industry, and banks must ensure the entire $59b debt is serviced.
But they don’t want to precipitate farmland and livestock value collapses.
Federated Farmers dairy section chairman Andrew Hoggard said all dairy farmers would be budgeting conservatively with minimal inputs.
“We have had two seasons in a row when the payout forecast started higher than it finished so we can’t afford to be overly optimistic.”
Although Federated Farmers’ banking survey reported the number of farmers feeling under pressure from their banks was rising, Hoggard had not been told about any cases of untoward pressure.
“If we hear any, we will publicise them.
“There have been some forced sales and people referred to head office credit control, whatever that means.
“But by and large if farmers have conservative budgets and spending plans the banks continue to back them.”
“The lift in GDT prices was welcome but we would caution against getting too carried away.”
Anne Boniface
Westpac
NZX Agri dairy analyst Susan Kilsby said her $4.45 forecast for 2016-17 was based on the dairy futures market to January at US$2450/tonne WMP and a flat line thereafter.
That assumed world powder prices would rise $300 from their present level of $2150, which was only a modest recovery during the rest of this calendar year.
The prediction also assumed a NZ dollar exchange rate of US67c, mostly hedged and locked in by Fonterra, but the present level of 70c would add more downside pressure to the milk price.
Westpac bank economists have next season starting at $4.60 while the ASB team was more optimistic at $5.
“The lift in GDT prices was welcome but we would caution against getting too carried away,” Westpac’s Anne Boniface said.
“The sustained period of lower prices has given many buyers the opportunity to stock up and while there have been preliminary signs of slower growth in European milk production, growing stockpiles will eventually be released onto the market, meaning a significant and sustained improvement in prices is likely to be some way off yet.”
Boniface and Kilsby also pointed out how small the WMP volumes on GDT were. In May it will offer 13,000t compared with 26,000t in May 2015 and 36,000t in May 2014.
“Fonterra has really tightened up supply on GDT, which certainly supported prices,” Boniface said.
“And the export data would suggest that Fonterra has been successful in moving all that it needs to elsewhere than the GDT platform and is not stockpiling.”
But the European Union was stockpiling and customers were fully stocked, meaning an upturn in prices would be muted and protracted.
For now, farm budgets must remain conservative, even painful.
