Global commodity prices to drift down -shift will be limited

Global commodity prices to drift down, but the shift will be limited – Rabobank North Island dairy tour

The 2013/14 dairy season officially commenced on June 1, and with the drought behind them, New Zealand’s producers are gearing up for a better season on the back of higher commodity prices, according a visiting dairy analyst.

Rabobank’s Australian-based senior dairy analyst Michael Harvey, who is touring the North Island this week, has crossed the Tasman to meet with some of New Zealand’s dairy farmers to discuss what’s in store for the coming months in the dairy sector.

In mid-June, Fonterra forecast a NZD 7.00/kgMS milk price for 2013/14, 21 per cent above last season’s milk price. It also confirmed a higher Advance Rate schedule than normal, which will assist with early season cash flows.

International dairy prices reached record highs in April, before the market blew off some steam in early June, but remain firm enough to deliver a higher farmgate price, Mr Harvey says.

“Milk production will return to growth in key export regions in late 2013, as farmers in the Southern Hemisphere get a crack at farm gate milk prices 20 to 33 per cent higher than 12 months prior, and all farmers see a substantial reduction in the cost of bought in feed,” Mr Harvey says.

“Prices are likely to drift down, as some demand is ‘choked off’ in emerging markets and buyers at least see a new season commencing in the Southern Hemisphere, but the shift will be limited.”

Speaking at Rabobank functions in Carterton, Hamilton, Putaruru, Morrinsville, Waihi, and Whakatane this week, Mr Harvey says weather conditions have improved markedly through March and April with virtually all key dairying regions in New Zealand experiencing good rainfall and mild temperatures, which has set farmers up for a better production season in coming months.

“Production will then edge marginally above prior year levels as the season builds, with the benefits of a slightly larger herd and the ability to buy feed, offsetting mixed cow conditions and low feed reserves,” he says.

“Looking at the global situation, from early 2014 we should see a stronger supply response from most major dairy exporters, and this will create bounce in export product availability and provide relief from extreme shortages.”

Mr Harvey’s responsibilities at Rabobank include the coverage of the Australasian dairy sector and the analysis of the value-added food processing sector. Rabobank’s Food & Agribusiness Research and Advisory (FAR) team is charged with analysing developments in food and agricultural markets and industries, and advising the bank and its clients on strategic implications for their businesses.

Following his tour of New Zealand’s North Island, Mr Harvey will release his latest research report on the South East Asian dairy industry titled, ‘Dairy – Milk for the ASEAN-6 tigers’.

The report highlights that dairy consumption growth has been outpacing local supply growth in the six ASEAN countries (Indonesia, the Philippines, Vietnam, Thailand, Singapore and Malaysia) which is creating substantial trade opportunities for dairy export countries, like New Zealand.

As the world’s leading specialist in food and agribusiness banking, the Rabobank Group has more than 110 years of experience providing customised banking and finance products and services. In New Zealand, Rabobank’s in-depth knowledge agriculture and the bank’s appreciation of the challenges facing the local rural sector has seen them become one of the country’s leading rural financiers.

ENDS

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