Why Rabobank dropped its milk price forecast to $5.60

Although Rabobank's milk price forecast has dropped to just $5.60 for the upcoming 2020/21 season, it doesn't have to be all bad news for farmers, says senior dairy analyst Michael Harvey.

"The worst case scenario here is we get it wrong - but at least farmers going into the new season planning and budgeting cautiously - I think that's a good result," Harvey told The Country's Jamie Mackay.

In its report, New Zealand Dairy Seasonal Outlook: Battening down the Hatches, Rabobank said a number of factors linked to Covid-19 would lead to an extended down cycle in global dairy markets.

These included reduced Chinese imports, supply chain disruptions and consumption pull-back, combined with modestly rising dairy surpluses in export regions.

"We, as a team globally, had to go to the drawing board to revise our expectations around the global market over the next 12 to 15 months," said Harvey.

The US and Europe in particular were facing a "fairly deep recession and a slow recovery", which would contribute to "subtle shifts" in dairy consumption on the global market, said Harvey.

"That's why we've got this fairly bearish view that we are going to see some downward pressure on commodity prices for dairy in US dollar terms in the coming six to nine months and that's going to feed through to a lower farmgate price for most dairy producers around the world that are certainly servicing an export market."

Although the recovery was underway in China, Harvey pointed out the country had started the year with "above average inventory levels."

As a result, Rabobank had modelled its expectation on China importing 20 per cent less dairy products over the course of 2020.

Also in today's interview: Harvey talked about how a weaker currency could be the "silver lining" for the industry and how Covid-19's impact made milk price forecasting more complex.