A weaker than expected rise in global dairy prices has left big question marks over the attainability of Fonterra's $4.60 milk price forecast

A weaker than expected rise in global dairy prices has left big question marks over the attainability of Fonterra's $4.60 milk price forecast

By David Hargreaves

The questions remain about whether Fonterra can make its forecast $4.60 per kilogram of milk solids price for farmers this season after prices gained only a little in the GlobalDairyTrade auction overnight,

The tepid 1.9% rise in the GDT Index and 1.8% gain in the crucial Whole Milk Powder price, to US$2304 per metric tonne were rather worse outcomes than had been indicated by futures trading in the lead up to the auction. It had suggested fairly chunky gains.

Fonterra recently re-affirmed its $4.60 milk price forecast but has made clear that the forecast is based on an assumption that there will be reductions in production globally and that this will help to boost international prices next year.

AgriHQ dairy analyst Susan Kilsby said it was disappointing that the GDT prices didn’t move up by as much as the market anticipated.

"However, the results are not surprising given that demand for dairy commodities is still weak relative to global milk supply.“

The later-dated WMP contracts traded at just a small premium over the closer-dated contracts at the auction.

“The premium was less than it was at the previous auction indicating buyers are less concerned about securing supply for later in the season than they previously were,” Kilsby said.

ANZ rural economist Con Williams said the auction outcome "certainly wasn’t endearing of a more sustainable recovery taking hold in the first quarter".

"The WMP curve was very flat suggesting buyers don’t as yet have too many concerns about weaker New Zealand supply conditions and further recent reductions in auction volumes. SMP pricing was a little better than intervention pricing in Europe (US$1,860/t) and some products traded below this level too. This suggests that until European milk supply slows and/or more product is placed into intervention, the market will continue to struggle to clear its excess product."

Williams said ANZ economists saw potential for New Zealand milk collections to deteriorate further heading into the New Year.

"This is likely to further reduce auction volumes and support prices. But by how much and for how long will depend on offshore fundamentals, which remain challenging.

"Until these improve, we continue to take a conservative approach to budgeting expecting a milk price of $4.25-$4.50/kg MS in 2015/16."

Westpac senior economist Anne Boniface said the auction produced "a fairly soft outturn" given that Fonterra had announced a reduction in the volumes offered, including a 2% cut in the forecast supply over the next 12 months.

"More broadly, Fonterra now expects its milk collections to be down 6% over the 2015/16 season. They had previously been expecting a 5% decline.

"Nevertheless, firmer prices in last  night's auction are broadly consistent with our forecast of a $4.50 farm gate milk price this season. However, this forecast relies on further improvement in prices in the new year as dry weather takes a bite out of NZ milk production."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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That and the fact volumes were down again

Total quantities sold for all products at the December 15th event of 24,888 MT were 11.6% below the previous auction and the lowest amount of product sold since June.
Volumes also remained lower on a seasonal basis as total quantities sold for all products within the December auctions were 29.0% below last year’s average volumes sold for the month of December and 42.0% below the previous three year average December quantities sold.

https://secure.attenbabler.com/wordpress/wp-content/uploads/2015/12/Mont...

And banks are telling farmers to budget on $6.30-50 when considering borrowing money. When questioned about the high bank budget figure they are told that it is the 'long term' price. Some farmers are dismissing bank advice but I wonder how many (especially young farmers) don't have good non bank advisors and are falling in to the 'bank trap'.

could be half
Those seeking support with their budget from an accountant lifted from 38.7 to 43.2 per cent. However, banks remained the most common source of external advice and assistance on budgeting, lifting from 49.5 per cent to 50.7 per cent.
http://www.stuff.co.nz/business/farming/75117333/new-survey-shows-banks-...

It was explained to us as control of/defending your interest through weight of process.
not un like an owner-driver.

Its all happening in Oz
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11561962
Fonterra said it would sell its Australian yoghurt and dairy dessert business to Parmalat Australia. Both parties entered into exclusive negotiations which have now culminated in the signing of a sale agreement. Fonterra did not disclose the sale price.

So much for branded products thru the supermarket channel.
And yet
A senior Woolworths executive has admitted the company pays mere "lip service" to enforcing its four-tin limit on infant formula, aimed at safeguarding supplies for Australian families.
http://m.smh.com.au/business/half-baby-formula-bought-from-aussie-superm...

Toll processing a no problem.

Fonterrahas sold its Australian yoghurt and dairy dessert business to Parmalat Australia for an undisclosed sum, having written it down by $108 million.

As AndrewJ has highlighted volumes are way down - what is happening to the rest? How long can it be stockpiled before it deteriorates or starts to act as a massive put on the price?

How many years is this going to continue? 1 or 2 years would seem no biggee but 5? The thing is the world has looked like a basket case for 7 years, threatening drops but still ppl have piled on debt convinced a few years of high payouts was the norm and it could never happen. A bit like depositors really, thinking 7% is the norm and squeal like stuck pigs when it isnt. Should I feel sorry for farmers? hard to sometimes when they knowingly vote, borrow and act like its always good times.

No need to feel sorry for farmer, but I doubt you do regardless. But what you could do is tell us how much longer it is going to go on for, because our CEO and Chairmen, dont seem to have any idea?

Omnologo, did you catch this?

Cutting through the Cheese of Global Dairy Markets - 2016" - Chris Walklandhttps://www.youtube.com/watch?v=qTk0CHdXHV0