ANZ Bank revises down the forecast milk price by 70 cents

ANZ Bank has revised down the forecast dairy payout by 70 cents but Fonterra said it was the only authority in terms of determining milk payment to farmers. Photo / John Stone

A major commercial bank has revised down by 70c the farmgate milk price for farmers due to deteriorating economic conditions throughout the world as a result of Covid-19.

But dairy giant Fonterra said the forecast farmgate milk price for 2020/21, which the company would announce on June 1, was the only true measure of what farmers were likely to receive and declined to comment on outside speculation about the impact of coronavirus on milk payouts.

Fonterra's current forecast price is between $7 and $7.60 per kg of milk solids.

ANZ Bank revised its forecast price from $6.45 to $5.75/kg MS, saying global dairy commodity markets were being severely impacted by changes in consumption patterns related to a large number of cafes and restaurants being shut down.

The lower forecast followed a government announcement that $500,000 would be made available to the primary industry sector throughout the country to help recover from the drought.

The money will be used to provide technical advice.

Based on the roughly 90 million kg of milk solids that Northland dairy farmers supply to Fonterra each year, they will earn $517.5m if the final payout price plummeted to $5.75 kg/MS.

A 70 cents fall in the final payout as predicted by ANZ Bank would mean a loss of $63m.

However, a prolonged drought means milk production would be down this season which would impact on the final payout.

Northland Federated Farmers acting dairy chair Matt Long said any reduction in the final payout would be triple blow for dairy farmers, who were already struggling with the impacts of Covid-19 and the prolonged drought.

"The price for this season, which ends on May 31, is reasonably locked in but the future in 2021 onwards is concerning and while milk production has held up reasonably well, Covid-19 will have an impact.

"There'll be slower recovery, the agriculture sector has taken a hit and people are being laid off, so any reduction in the final price won't be good for us."

Northland Rural Support Trust co-ordinator Julie Jonker said like any business struggling with overhead costs, farmers too would be worse off if their earnings were impacted.

ANZ Bank said the reduction in demand for dairy products from the foodservice sector has resulted in growing surpluses of milk, especially in regions where a large share of dining normally occurred outside of the home.

"The lower forecast has been driven by a significant deterioration in economic conditions in most parts of the globe, and more specifically the recent sharp fall in dairy commodity prices in the United States and European markets," the bank said.

Thus far, the bank said the prices New Zealand was receiving for its dairy commodities have held up much better than the prices of similar goods traded within the US and Europe.

However, it warned it was only a matter of time before prices for New Zealand-sourced dairy products also came under pressure.

Milk production in New Zealand this year has been curtailed by the widespread drought, which means many farms have dried off cows a lot earlier than
normal.

ANZ Bank said although a significant reduction in milk supply has not yet shown up in the official production data for March, figures for April and May would show a much sharper drop which would bring this year's production back to slightly less than that in 2019.