What it described in its fortnightly Agri Update as disappointing GlobalDairyTrade returns prompted it to lowere its forecast to $4.50/kg of milksolids
“This will leave many New Zealand dairy farmers facing a second consecutive season operating with negative cashflows.
“This has the Reserve Bank on high alert for any risks the dairy sector poses for the wider NZ financial system.
Westpac said its forecast is still contingent on some improvement in prices over the remainder of the season.
“This is something we continue to regard as likely – despite the direction of recent price moves.
“New Zealand dairy farmers are yet to feel the full brunt of an El Nino weather pattern but milk production, for Fonterra farmers at least, is already running 4% behind last season thanks largely to early culling of stock and reduced spending on supplementary feed.
“If El Niño does hit milk production, we suspect it will lead to a bounce in prices, albeit a temporary one.
Dairy sector debt combined with low payouts presented an economic stability risk
Debt in the sector has climbed about 10% over the last year.
“There is no escaping that higher debt levels will in turn probably add to farmers’ costs in future seasons.
“Increasing debt is a strategy that can last only so long,” it said.
