Sheep farmers grin as grass grows greener

For the first time this century the price of lamb for farmers is higher than the price of milk. At $6 a kilogram and rising, the lamb price is in previously uncharted territory. Unfortunately, the milk price is at $5.20 a kg and predicted to fall to $4.55. For some dairy farmers it is also a journey into the unknown, and one they must be dreading. But all is not lost reports The Dom Post. The experts at three of the main banks are convinced better times lie ahead. This is despite each differing wildly from the other in their exchange rate expectations. According to their latest forecasts, this year's prospects for dairy and lamb are pretty good, certainly not dire. Here's what they say: National (predicting a NZ dollar at US49c by the end of next year): conditions are delicate but the long term is positive; Westpac (US60c): "green shoots" are appearing but a sustained recovery is some way off; BNZ (US68.5c): "pockets of optimism" can be found in the gloom. The reality is that things are not as bad as they seem. Try to forget that it is cold, wet and muddy and that we're all coming down with the flu. Spring will come and with it will be new growth, new lambs and calves and cheery daffodils. Not surprisingly, with the rosiest exchange rate view, the most positive of the banks is National. It forecasts an eventual dairy payout of $5.20. This is quite a jump from Fonterra's initial expectation of $4.55 and one no-one else is bold enough to match. However, the bank seems to recognise it may be over-hopeful with such a prediction and hedges it with: "The heightened volatility in commodity and money markets mean that a lot can happen between now and September-October 2010 when the [dairy] forecast is finally crystallised." The bank also notes a slowing in European and American milk production in the face of low prices."It all starts to look like the imbalance between supply and demand is correcting, but it is early days."But Westpac points out that the fall in milk production is not being matched by increasing retail prices, that stockpiles overhang the market and even if commodity prices stay at current levels they will be 25% below the season just ended. Its forecast is for a payout of $4.70, but it also points out that market conditions are "changing so rapidly and violently it is difficult to be confident of any forecast at present". BNZ is confident commodity prices will lift, "albeit in a modest fashion and not without substantial risk". It adds that anyone expecting the payout to better the $5 mark is not giving the risks "their due".