Economists were cautious yesterday about predicting the future for milk prices, but Westpac senior economist Anne Boniface again warned the impact of the current El Nino weather pattern could weigh on New Zealand milk production in coming months.
‘‘This in turn could put some temporary upward pressure on prices. But with European milk production still growing strongly and the Chinese economy continuing to look relatively soft, a more sustained improvement in prices looks likely to be a while away yet.''
Westpac's current $4.50 kg/ms payout forecast relied on an improvement in prices in the first few months of the year. The latest auction disappointed relative to expectations and introduced some down-side risk to the forecast, she said.
ASB senior economist Chris Tennent-Brown said he continued to expect dairy prices to lift this year, but the risk was the lift would only be modest.
Fonterra's $4.60 kg/ms forecast was maintained at its December 10 review.‘‘The stable forecast reflected the board and management's view of international prices continuing to improve in the first half of the year.
‘‘This may still happen but the signals from the overnight auction and current futures prices highlight the risk of only very modest gains over the coming months.''
Whole milk future prices for mid-2016 were around $US2500-$US2600 ($NZ3732-$NZ3881) a tonne. That was higher than near-term prices, but a long way short of the desired price recovery of near $US3000, which would make the current milk price forecast more achievable, he said.
In the latest auction, the greatest falls in whole milk powder prices were in the season-end contracts, where prices declined more than 6% from the December 15 auction. That suggested participants did not have supply concerns over the back half of the season.
With the December result below ASB expectations, and prices falling at the latest auctions, down-side risks to the $4.60 kg/ms forecast had increased. The ASB would review its milk price forecast after the next auction on January 19, Mr Tennent-Brown said.
Fonterra was required to consider its forecast every quarter as a condition of the Dairy Industry Restructuring Act.
However, some good news may come tomorrow for farmers with the release of Niwa's first Hotspot Watch report for 2016 and monthly climate report.
Niwa said the El Nino weather pattern, one of the three strongest since 1950, was expected to abate through summer and autumn but, given its intensity, New Zealand farmers were still at risk of drought.
The last Hotspot on December 24 showed drier-than-normal soil moisture across much of the North Island and in the north and east of the South Island, but the situation has been complicated by heavy rains over the New Year period.
New Zealand Meat Board data showed more livestock was killed in the first eight weeks of the season through until November 28 than in the year-earlier period, suggesting some farmers were already responding to dry weather, which stifles pasture growth.
‘‘We're expecting El Nino to weaken for the rest of the summer and by the end of the second quarter to return to more neutral conditions,'' Niwa forecaster Chris Brandolino said.
‘‘But it is important to remember this El Nino is of very strong intensity and its effects will continue even as it weakens.''
At a glance
• Dairy prices fell at the latest GDT auction
• Dairy prices are expected to rise this year, but only modestly
• The El Nino weather pattern is expected to hurt milk production
