Its back in the black annual result has gone a long way to pulling the co-operative out of the financial quagmire it found itself in last season, posting a $659 million profit and reducing its debt by $1 billion.
It was able to do this on the back of the market disruptions caused by covid-19, as well as widespread drought throughout much of the North Island last summer and autumn.
It’s a stark contrast to last year’s result where it made a $605m loss.
The dairy co-operative kept its forecast for the current season at $5.90-$6.90/kg milksolids.
Chair John Monaghan says with the impact of covid-19 still being played out globally, supply and demand remained finely balanced as justification for the move.
“There continues to be significant uncertainties, including how the global recession and new waves of covid-19 will impact demand globally, and what will happen to the price relativities between the products that determine our milk price and the rest of our product range,” Monaghan says.
For farmers, the effects of this season’s La Nina weather pattern forecasted for this spring and early summer should be added to that.
Confirmed by Niwa as a 57% chance of occurrence, the pattern will see above-average air temperatures, north easterly winds, which caused rain to the North Island’s north east and drier conditions in the south and southeast of the South Island.
Soil moisture conditions are also likely to be below normal in the South Island, normal in the east of the North Island and normal or below normal for all other regions.
While it won’t affect the milk price, it could affect production, particularly in regions still recovering from last year’s drought and on farms affected by the disruption caused by contractors unable to plant summer feed crops due to worker shortages.
That’s one of the few clouds after a fairly positive month after the most recent GDT auction, where prices increased 3.6% and average prices made US$3,092.
The result was the first time prices had increased since July.
Whole milk powder (WMP) prices were up 3.2%, with an average price US$2,985/Mt, and skim milk powder (SMP) prices lifted 8.4% (albeit on small volumes).
Cheese prices also posted positive results, up 7.2% to sell for US$3,674.
US-based RaboResearch dairy analyst Thomas Bailey says the results should support broader increases in prices around the world, boosting profitability for dairy farmers and eventually resulting in a bump in milk supplies.
He says the result indicates a firming of global demand as buyers who have been sitting on their hands looking for market direction step up their purchases.
SMP prices are now back to February price levels and at significant premiums to the international market. The latest increase puts this product 23% above US and EU levels, he says.
The price gap between SMP and WMP had narrowed from a two-year average WMP premium over SMP of $600 to $90.
Bailey cited several reasons behind the jump in SMP prices; the preference for New Zealand products and a shift occurring in procurement strategies related to covid-19, as food security becomes a priority.
“This shift means ingredient buyers are willing to hold more stocks to avoid any complications in trade challenges,” he says.
“This appears to be particularly true for China, who does not manufacture its SMP due to an absent market for the milkfat by-product.
“So the need to shore up New Zealand SMP seems to be at play.”
He says the result should support broader increases in prices around the world, boosting profitability for dairy farmers, and eventually resulting in a bump in milk supplies.
All this bodes well for NZ for the coming season.
Westpac senior agri-economist Nathan Penny was cautiously optimistic about the outlook with the result consistent with its $6.50/kg MS forecast.
“However, it’s still early days in the season, and the uncertainties around the covid impact through the full dairy season remain large,” he says.
On this basis, we recommend that farmers approach the season with eyes wide open and continue to closely follow dairy market developments.”
Sage advice considering all the factors currently at play.
