20 Jan 2015
ANZ cuts 2014/15 NZ milk price forecast
FXStreet (Bali) - ANZ has cut its 2014/15 NZ milk price forecast again to $4.35kg MS, while anticipating a softer opening price for 2015/16 to be announced in May around the $5.75/kg MS mark.
Key Quotes
"We have cut our 2014/15 milk price forecast again to $4.35kg MS. That’s well below break-even for many dairy farmers and represents an approximate $6.9bn (or 3.1% of GDP) hit to overall dairy revenue compared to last season."
"We also anticipate a softer opening price for 2015/16 to be announced in May around the $5.75/kg MS mark (previously $6.50/kg MS); although we expect a further uplift toward the low $6/kg MS mark by the end of the season."
"We project milk powder prices to recover to around the US$2,800-$3,000 per tonne mark by the middle of the year and then US$3,300-US$3,500 per tonne by early 2016."
"Cashflow is set to tighten dramatically. While cashflow at $6.00/kg MS for a fully share-backed farmer in 2014/15 (deferred and advance milk price + dividend) isn’t quite as bad as the headline figures, this changes rapidly in the middle of 2015 and is where a softer opening figure for 2015/16 will hurt. A poor year followed by a marginal one is hardly lights out, but it will create stresses."
"The next 18 months will be difficult for farmers’ cash-flow and ability to balance the books, particularly for those regions where pasture condition have deteriorated and softer production beckons. . It will necessitate a cut in not just capital and discretionary expenditure, but also core operating expenditure to breakeven and avoid a debt blowout. That will create some gestation issues across the economy."
"The economy has pep from other sources to absorb low pay-out challenges. The outlook for the economy is still respectable (though hardly stellar). However, we are becoming more and more alert with each passing day to a weakening global scene, which risks impacting other commodities and demand, with the situation being complicated by a NZD that is disconnected with local fundamental. Monetary policy will need to remain accommodative for longer."
Key Quotes
"We have cut our 2014/15 milk price forecast again to $4.35kg MS. That’s well below break-even for many dairy farmers and represents an approximate $6.9bn (or 3.1% of GDP) hit to overall dairy revenue compared to last season."
"We also anticipate a softer opening price for 2015/16 to be announced in May around the $5.75/kg MS mark (previously $6.50/kg MS); although we expect a further uplift toward the low $6/kg MS mark by the end of the season."
"We project milk powder prices to recover to around the US$2,800-$3,000 per tonne mark by the middle of the year and then US$3,300-US$3,500 per tonne by early 2016."
"Cashflow is set to tighten dramatically. While cashflow at $6.00/kg MS for a fully share-backed farmer in 2014/15 (deferred and advance milk price + dividend) isn’t quite as bad as the headline figures, this changes rapidly in the middle of 2015 and is where a softer opening figure for 2015/16 will hurt. A poor year followed by a marginal one is hardly lights out, but it will create stresses."
"The next 18 months will be difficult for farmers’ cash-flow and ability to balance the books, particularly for those regions where pasture condition have deteriorated and softer production beckons. . It will necessitate a cut in not just capital and discretionary expenditure, but also core operating expenditure to breakeven and avoid a debt blowout. That will create some gestation issues across the economy."
"The economy has pep from other sources to absorb low pay-out challenges. The outlook for the economy is still respectable (though hardly stellar). However, we are becoming more and more alert with each passing day to a weakening global scene, which risks impacting other commodities and demand, with the situation being complicated by a NZD that is disconnected with local fundamental. Monetary policy will need to remain accommodative for longer."