Prices for skim and whole milk powder and anhydrous milk fat all dropped at last night’s globalDairyTrade auction.
The gDT-TWI index was down 8.3%, skim milk powder dropped 8.9%, whole milk powder was down 7.7% and the price for AMF fell 7.6%.
An email to shareholders from Fonterra chair Sir Henry Van der Heyden noted the relatively high value of the New Zealand dollar but said the current season’s forecast payout still remained in the $6.90 to $7.10 range.
World milk prices have been volatile, but there’s nothing new in that. Dr Jon Hauser at X-Cheque has graphed milk prices in Australia, France, the UK & USA since 1995 and it looks like coloured spaghetti. (New Zealand prices aren’t included but he says they’re similar to Australian ones).
For me the most interesting data is that of the USA. A regular cycle of volatility has persisted for 15 years. The peaks are about 3 years apart with a fall to a roughly similar level in between. There is no doubt that the supply / demand balance in the US is the principle driver of this cycle. In a perverse way the market behaviour is comforting. It is to some extent predictable and it would be more of a worry if there were prolonged periods at the low points.
Australia and New Zealand look like they are trending towards the US cycle. In the short term that will be a positive as it will mean a lift in the long term average price. In the longer term farmers will need to be very careful to avoid getting over excited about the periods of peak pricing. Their businesses need to be designed to withstand the troughs in price. The major risk in this regard is overpriced land and excessive debt.
Our bank is holding a series of meetings for clients at which they give a similar message.
There may be a glimmer of hope for New Zealand dairy farmers though, the price of grain in the UK is very high (close to £140/t). That will increase input prices for dairy farmers there which ought to make it easier for us to compete with them.
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