One milk processor reduced their forecast milk price late last week by 70 cents/kgMS with a total price range forecast of $5/kgMS to $5.40/kgMS.
They will have been reacting to the falling globalDairyTrade results of the last few months and also the uncomfortably high levels of the NZ dollar.
But this writer believes the milk price will end up with a $6/kg in front of it and is happy to take a bet with anyone that wants to bet the contrary.
My first reason is the effect of the US drought. In two or three weeks this could be confirmed as being one of the worst in more than 50 years; at present the Soya bean crop is at a critical point and there is minimal rain in the forecast (see below for 14 day forecast from drought monitor).
There will be widespread effects on animal production (dairy but beef, pigs and chicken as well) which will raise the costs of milk production in countries like China and milk supply will fall. Prices will go up - see the two following economist articles/blogs.
The second article is a serious look at the consequences of dry weather through August see the following article also from the Economist. It is not just the US that is dry - and also expect China to enter the market for feed grains in a big way.
My second reason for being bullish is that prices will move quickly. In four out of the last six seasons the milk price has lifted 40% on the opening forecast (the other two the price did fall but from higher levels). Most of the season is yet to go and most of the production has yet to be sold.
Anyone want to take the bet?