Good Signs

Agri-fax's August Dairy Report was out today.  This report is a summary of information on the (NZ) dairy industry that mixes information, statistics and forecasts in a useful monthly summary (Google "Agrifax" if you want more details, it is a chargeable report).

The report is pretty good reading - not every indicator is pointing in the same direction - but there is enough to give dairy farm investors encouragement.

For example;

• Dairy stocks are at very low levels.  There are virtually no government stocks on hand in the USA and EU intervention stocks are lower than a year ago and significantly lower than two years ago.
• Feed costs for most of the world, where they feed cows feed that could go to ethanol production or to feed humans, keep rising.
• Agri-fax "anticipate a rebound in prices ahead".  This prediction will next be tested at the globalDairyTrade auction on the 7th of August.

On the negative side, Agri-fax have lowered their milk price forecasts to $6.60/kgMS for the current and next season and $7.15 for 2013/14 season.  These are still good prices but have been reduced as Agri-fax increases their exchange rate forecasts.

For my money the Agri-fax forecast at $6.60/kg is under the money.  At MyFarm we believe Fonterra has better forward cover than most estimate and forward sales are also an important feature for the year.  Again, time will tell.