The spectacular rise in dairy prices could be matched by an equally spectacular fall. Westpac is forecasting Fonterra's final payout for this season to be $6 a kg of milk solids but returning to close to traditional levels of $5.30 a kg of milk solids for the 2009-10 season, due to the global economic crisis. In its latest Agribiz market outlook, Westpac economist Doug Steel was more optimistic for lamb and forestry, especially logs, but did not see a recovery in beef prices from their current low levels until late next year writes The ODT. Mr Steel said farmers and the export sector were benefiting from lower interest rates, which could hit 4% by mid 2009, but they were also seeing the benefits of flexible macroeconomic policies. "While it is near impossible to estimate how the large changes in many relative prices will balance out in the bottom line for agriculture, we can be confident that if it wasn't for the flexibility of the macroeconomic framework in New Zealand allowing speedy reactions to world developments, the eventual outcome would be a lot worse." Product prices would be lower and affect farmer incomes, but countering that was a lower exchange rate, which would remain volatile and could slip to the mid-US40c range, lower interest rates and lower fuel and fertiliser costs. International dairy prices were expected to tumble sharply in the coming months as weaker demand met growing supplies and stocks. "World prices are expected to be 64% below their peak levels by the end of the 2008-09 season," Mr Steel said.
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