White gold: Dairy exports set to jump $3 billion

The dairy industry is on track to post a big export result in this year. Photo/Brett Phibbs.

New Zealand dairy exports this season are on track to jump nearly $3 billion on last year, adding economic cream to positive payout predictions for the new 2018-2019 season.

DairyNZ senior economist Matthew Newman said the value of dairy exports is on track to generate more than $16 billion in the 2017-2018 season, which ends on May 31. The value of dairy exports in the previous 2016-2017 season was $13.4b, he said.

"Dairy export receipts were up 25 per cent for the period from June 2017 to December 2017, compared to the same six months the previous year. Volumes showed little change so it was primarily due to increased prices. Butter prices were up substantially."

Newman said higher export returns flow into higher milk prices which generally meant farmers spent more in their regions and the whole economy benefited.

Meanwhile, bank economists said the latest Global Dairy Trade (GDT) auction results helped the stickability of Fonterra's milk price forecast for this season, recently increased to $6.55/kg milksolids.

Despite an overall 0.6 per cent fall in the auction price, the fourth easing in a row, New Zealand's staple dairy export and key milk price influencer wholemilk powder rose 1.6 per cent to US$3278/tonne.

ASB senior rural economist Nathan Penny believed Fonterra's payout could yet get to $6.60 "and this (GDT) result doesn't change our view on that".

With 82 per cent of the raw milk market, Fonterra sets the industry bar for a season's milk price.

The ASB is picking an opening milk price of $6.50 for the new 2018-2019 dairy season, which opens on June 1.

"As far as we can tell markets are fairly well balanced, demand is solid and New Zealand production is soft while Northern Hemisphere production is firm, so that balances out" Penny said.

"Add those things up and the outlook is more of the same for next season."

ANZ rural economist Con Williams said the GDT was a positive result which made Fonterra's $6.55 milk price forecast for this season more obtainable.

Chinese participation in GDT auctions had picked up recently which supported prices and there had been low New Zealand supplies on the auction platform, which balanced out current seasonal competition from European dairy producers, he said.

"That feeds not just into the $6.55 ( Fonterra forecast) but the new season as well."

ANZ's current milk price forecast for this season is slightly under $6.55, and at $6-$6.25 for the new season's opening price, the bank is among the more pessimistic punters.

But DairyNZ's Newman said $6.20 is still a good price and would allow farmers to be profitable again next year, which was positive for the economy.

Newman said international milk prices were stable which was a good outlook for next season, although it was still early days.

The ASB's Penny said the biggest risk to the bright outlook was the trade "skirmish" between the United States and China.

"There's been no direct impact so far in dairy markets, which showed no sign of panic (in the GDT auction) but what we are worried about is a skirmish escalating into a trade war.

"That could have material effects for both the Chinese and US economies, growth would slow and that would translate into lower spending. If the incomes of those two drops then global incomes will drop.

"So we're worried about lower demand from China which is our biggest (dairy) market and that would probably translate into lower prices. It's in the risk basket but it's front of mind for us at the moment."