Fonterra said it was “cautiously positive” over dairy prices, even while foreseeing continued market volatility, and raising its estimate for milk output in New Zealand, the top exporting nation.
Auckland-based Fonterra, the world’s biggest dairy shipper, said there had been a “supply-led rebalancing” in the world dairy market, underling output declines in many major exporting countries.
Production in the European Union had stagnated last year, while that in New Zealand itself had dropped 4%, with Australia seeing a 7% tumble.
Meanwhile, imports by China had risen by 12%, and those in the rest of Asia by 5%.
And “markets we export to are expected to keep growing their imports of dairy products for the remainder of the year”, Fonterra said.
Indeed, “on balance, we are cautiously positive” on prices, the co-operative stated, sentiment which it said had been reflected in its decision to keep at NZ$6.00 per kilogramme of milk solids its forecast for farmgate milk prices in 2016-17, besides a rise in advance payments to producers.
However, it cautioned that “volatility in global prices will continue”, flagging the potential for disruptions from moves towards protectionism in many countries.
“Volatility has been a constant companion in recent years and the political landscape is changing, with potential challenges to free trade.”
‘Conditions are improving’
The cautious optimism on milk prices also came even as Fonterra raised again its forecast for New Zealand milk output in 2016-17, which ends in May.
“The poor spring in New Zealand saw us forecasting milk collection to be down 7% for the season,” said the group, which processes the vast majority of the country’s output.
“But following good rainfall in autumn on-farm conditions are improving which means we are now expecting New Zealand collections for the season to be down by 3% on last season,” said John Wilson, the Fonterra chairman.
The group flagged “improving conditions across most parts of the country” which had seen February collections, at 140.9m kilogramme of milk solids, come in 2.2% behind those a year ago, trimming the rate of decline for the first nine months of 2016-17 to 4.6%.
‘Production bounceback next season?’
Fonterra also noted that, amid improved market conditions, New Zealand farmers were “restoring the financial strength of their businesses”
“A $6 per-kilogramme-of-milk-solids milk price would put NZ$3bn more into the New Zealand economy than last season.”
Higher returns also imply support for milk production prospects ahead, a factor highlighted in a bank of New Zealand report last month which said that lower cow culling rates “add support to the idea that the current season’s milk production declines are being driven by less milk per cow, associated with such things as less supplementary feed use.
“This increases the likelihood of a production bounceback next season, weather willing.”
Fonterra’s comments came as the group unveiled a 2.2% rise to NZ$418m in earnings for the six months to the end of January, on revenues up 4.6% at NZ$9.24bn.
The results also follow a 1.7% rise in prices at the latest Fonterra-run GlobalDairyTrade auction, on Tuesday, a result termed by Tobin Gorey at Commonwealth Bank of Australia as “on balance, a plus for the dairy market.
“Whole milk powder prices made solid gains, up about 3%, well shy of expectations for losses of anywhere up to 5%,” Mr Gorey said.
A 10% fall in skim milk powder prices “looks almost entirely like GDT auction prices catching up to where the rest of the physical market is trading”.
On New Zealand’s NZX exchange, best-traded whole milk powder futures for June soared 7.7% to $2,880 a tonne on Wednesday, in a rise viewed as a reaction to the unexpected price resilience at GDT.
(Source – http://www.agrimoney.com/news/fonterra-cautiously-positive-on-dairy-prices-even-as-futures-bounce–10561.html)