DAIRY NEWS MARCH 12, 2019
4 // NEWS
$7-plus payout on the cards? PAM TIPA pamelat@ruralnews.co.nz
THE FARMGATE milk price
could possibly rise beyond $7/ kgMS in the 2019-20 season after the seventh consecutive GDT Event price index gain last week, says BNZ senior economist Doug Steel. But he remains wary of demand, given slowing global and Chinese growth indicators. But ASB’s Nathan Penny is sticking with his bullish $7/kgMS forecast for next season after the price index climbed 3.3% last week. Steel told Dairy News last week’s overall gain was underpinned by a chunky 6% lift in whole milk powder (WMP). The price index has made a cumulative 23.8% gain since November last year. “Tight global supply (including slowing late season NZ milk production) is providing support to
prices,” Steel says. “EU milk production has been flat and stockpiles unwound, while Australian milk production is well down on a year ago. Meanwhile, demand looks strong with unsatisfied bidders at this auction well above average at 67.” If prices were to hold their recent gains the 2018-19 milk price would come in close to the midpoint of Fonterra’s newly minted forecast range of $6.30 to $6.60/ kgMS, Steel says. This adds to the upside possibility of BNZ’s $6.25/ kgMS forecast. It is the first auction where WMP prices have pushed materially above the Reserve Bank’s medium view of US$3000/tonne, with last week’s prices reaching US$3186/t, he says. Currently BNZ’s forecast for next season stands at $6.10/kgMS but there is a clear upside possibility. Current market conditions are consistent with a 2019-20 milk price of $6.70/kgMS but it
were less than the could push above $7/ prior auction (-8%) kgMS. But aside from but still significantly slowing demand indihigher than last year cators there is also (+35%). WMP demand a chance that global is robust at presmilk production might ent and this is a very improve as grain prices strong result seeing as weaken, he says. milk continues to flow Rabobank dairy (albeit heat impacted analyst Emma Higgins Doug Steel, BNZ in recent weeks) and says the total SMP volumes on offer for last week’s GDT product volumes are plentiful. “As we move closer to the Event (6255t) was significantly higher than the prior event in Feb- northern hemisphere spring flush, buyers will be turning their eyes ruary 2019 – over 40% more. “This highlights the extra milk towards how the season is shapNew Zealand farmers have been ing up there,” she says. “More milk will likely be availpumping out this season and is highlighted further when consider- able from Ireland given that last ing the SMP volumes for this event year weather challenges hampered were up 112% on the first March production. “But France and Germany are event last year.” These factors contributed to still lagging behind their prior year the decline in SMP pricing of 4.3% milk collections. Weekly collections through to February 10 suglast week. “On the other hand, the aver- gested Germany was 0.6% lower age WMP leapt 6% to land at and France 3% below the prior US$3186/t. The volumes on offer year.”
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FONTERRA RATING OUTLOOK REVISED FITCH HAS revised its rating outlook for Fonterra
to negative from stable but reaffirmed the long term default rating as ‘A’. The revision follows Fonterra’s reduction of its forecast earnings for the year ending July 2019. “In our view this indicates that the cooperative has structural issues it needs to address to retain the defensive traits that have underscored its historically strong business profile,” Fitch says. The cooperative’s current review will be crucial in this, it says. Fitch says it “is positive for bondholders” that Fonterra has said it will not pay an interim dividend, that any decisions on full year dividend will be made at the end of the financial year and that its dividend policy is under review. This “continues to reinforce Fitch’s expectation that Fonterra will prioritise the strength of its balance sheet over payment to farmer shareholders”. Regarding structural issues, Fitch says “the effect that volatility in the dairy market and other industry issues in specific geographic regions continue to have on Fonterra’s profits indicates there are structural issues within the cooperative, which limit its ability to absorb these effects”. Fitch says the cooperative is committed to reducing leverage and reviewing its portfolio. “We believe asset sales are critical for Fonterra to return its metrics to a level in line with its current rating, given the impact the structural issues continue to have on Fonterra’s ability to organically deleverage.” Any delay in the expected $800 million asset sales will put pressure on Fonterra’s rating. Fitch notes Fonterra is a world leader in dairy exports representing about 15% in the global market including a 42% share in whole milk powder. And it is New Zealand’s largest dairy producer collecting 82% of the country’s milk supply in the 2017-18 season. – Pam Tipa
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