Andrew's blog

The view from Australia....

The following is the view from "across the ditch" which I thought makes interesting reading.

"The dynamics, including increased Chinese interest, required to spark a revival in dairy prices are beginning to slot into place, although the market is "unlikely to stage a dramatic recovery any time soon".

Turning the corner

The gDT auction yesterday was a pleasant surprise.  But not surprising at the same time; I had personally expected a 10% gDT rise at some time - but my pick had been prior to Xmas.

What has happened?

The first point is that China is starting to buy again.  They bought a similar amount of WMP from NZ in 2014 as they did in 2013 but the buying pattern resulted in high demand 1H 2014 (along with high prices) and low demand in 2H 2014 (with low prices).

A week of good signals

Fonterra’s milk price forecast ($4.70/kgMS) for this season is looking more realistic and looking out to 2015/16 a milk price around $6.40/kgMS is achievable. Here’s why:

Dairy Prospects for 2015

Making projections for 2015 is probably a risky business.  But i won't be too bold with the following;

Aussie droughts will impact production

Very dry spring and soaring temperatures so far this summer in key dairy farming areas are likely to have an effect on milk production. That's the conclusion from Australian based market analysts, Fresh Agenda, which you can read below:

gDT up but some mixed signals

gDT rose this morning by 2.4%.  As can be seen from the following image, Butter, Anhydrous Milk Fat and Butter Milk Powder all rose strongly.  There were a couple of falls but even Whole Milk Powder rose by 1.4%.

Remaining confident

2014/15 will be a low point in terms of milk price and dairy farm profitability.  The highs of 2013/14 seem a long time ago.

A few charts are illuminating.  The first shows what has happened with Chinese Demand; they bought heavily in H1 and are now drawing on reserves H2.  The consequence was a high milk price in 2013/14 and now a very low milk price in 2014/15.

Taking the long term view

This week Fonterra and Open Country have announced further reductions in their forecast milk prices for this current season to $4.65/kgms (OCD) and $4.70/kgms (Fonterra). Synlait has also indicated its price to suppliers this season will "start with a 4".

These are unpleasantly low milk prices and unfortunately many dairy farm businesses will struggle to generate profits at this price level.

All eyes on gDT (again)

The last gDT result was interesting in that there was a significant step-up in forward prices for whole milk powder delivered in contract periods 4 and 5 (four and five months in advance).  March prices were up 7.5% and April prices were up 10.4%.

This may, or may not, indicate increasing interest in next year's production and an increasing price trend.  The auction this week will be interesting - particularly the forward prices for WMP. 

Farmers need help

Farmers are struggling with cost appreciation - with an increased cost structure of 40% since 2005.  And milk prices have been coming back regularly - farmers need support managing volatile milk prices.

This message would resonate well in NZ, apart from the 'support' part.  This is a reworded extract of an article which quotes the President of the Irish Farmers Association: