We are now well into the 2012/13 dairy season. Production is still several weeks away from the October peak, but Fonterra is now forward selling its October and November production for shipment in November and December.
Prices have risen again in today’s Global Dairy Trade auction but this time by only 2.4%. Prices have now increased some 20% over the last two months, but the $US exchange rate has also been climbing. In the last three months it has increased about 10% and the $NZ is now worth about US83c. With another does of American quantitative easing underway, there are no current signs of it dropping again.
By my calculations, today’s auction prices will still only support a commodity payout of about $NZ4.60 per kg milksolids. Accordingly, although in late August Fonterra did bring their forecast for the current season down to $5.25, I think this is still looking optimistic.
Currently, most of our commentators are seeing the ongoing rise in prices, but not recognising that these prices will still not support a payout of $5 or above. And the longer the prevailing price is below $5 then the higher it has to go for the remainder of the season to balance that out. Accordingly, next month I expect Fonterra to drop their estimate yet again by another 25c or thereabouts.
Of course there are still lots of unknowns out there. Corn prices in the US have slipped back a little to about $US7.50 a bushel, and this is down almost 10% from where they peaked a month ago. So American dairy farmers will take a little heart from that, and the large-scale operators will try to ride out their current problems.
It will also be crucial that demand from China holds up. An interesting development is that the Chinese seem to be increasingly buying whey products from Europe. Presumably these imports are being used in infant formulas. Whey proteins are the dominant proteins in human milk whereas caseins are the dominant proteins in cow milk.
19 September 2012