Susan Kilsby, Agriculture Economist at ANZ, points out that in the NZ, dairy commodity prices have moved in a downward trajectory since the beginning of the 2018/19 season, putting pressure on returns at the farmgate level.
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“A stubbornly strong NZD is also negatively affecting returns. While higher commodity prices and a lower exchange rate are forecast to materialise before the end of the season, it is now unlikely these movements will come soon enough to support our previous milk price forecast. We have therefore revised our milk price forecast for the 2018/19 season to $6.10/kg milksolid(MS) (previously $6.40).”
“The NZD remains relatively strong against the USD. This in part reflects a shift in pricing for the RBNZ from rate cuts to hikes, an unwind of short positioning within the speculative community, and up until recently, an improvement in global risk appetites. However, a slowdown in global economic growth, together with tightening global liquidity, is expected to put downward pressure on the NZD in time. Dairy company hedging means there is a delay in exchange rate movements flowing through to the milk price. Therefore, any downwards movement in the currency will now have a greater influence on next season’s returns than the current season.”
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