It's a key week for dairy farmers as Fonterra holds what will probably be its last global auction before it makes its first forecast for next season's milk payout. With special feature audio.
The market will be looking to see how optimistic Fonterra is prepared to be in setting its first forecast for next season’s milk payout in the face of continued depressed global pricing.
This week’s auction will probably be the last piece of pricing information Fonterra has to go on before making that forecast since it traditionally announces its first forecast in late May.
The news so far this year hasn’t been good, with the headline Global Dairy Trade Index down 5.7% and whole milk powder prices, the crucial price for the Fonterra payout, down 10.1%.
Craigs Investment Partners’ head of wealth research, Mark Lister, expects Fonterra will nevertheless begin with a higher forecast than its $3.90 a kilo of milk solids expectation for the current season’s payout.
Mr Lister is expecting something close to $4.50 a kilogram of milk solids.
“This will assume an uplift in prices over the coming months although it will still be below breakeven levels for many farmers for the third year in a row,” he says.
The average farmer is estimated to need a payout of about $5.20 a kilo of milk solids to break even.
Although low interest rates have undoubtedly been helping farmers to manage through, market pricing of a further cut in rates in June dropped sharply last week following the Reserve Bank’s financial stability report.
The market is now pricing in a 52% chance of an OCR cut in June, well down from the 82% pricing a week ago.
Little help from the kiwi
The currency certainly hasn’t been much help to dairy farmers and, although the New Zealand dollar eased more than a percent against the US dollar last week, it rose off its lows after the financial stability report and it’s now just 0.89% lower than it began the year.
The New Zealand Top 50 Index eked out a 0.27% gain last week, with Orion Health gaining 6.7%, Metro Performance Glass up 5.2% and Xero rising 4.8% after an initially lukewarm response to its annual results turned more positive.
Among the major decliners, Sky TV shed another 14% after its shock announcement on May 6 that it has lost about 45,000 core subscribers, Refining NZ eased 5.2% on the likelihood its golden weather is drawing to a close and Kathmandu dropped 5.1% on concerns about how the Indian summer will affect its winter sales.
On the economic front this week, the Reserve Bank’s latest quarterly survey of inflation expectations is unlikely to give the central bank any comfort that inflation is likely to rekindle any time soon while migration numbers will also be closely watched because of their impact on the booming housing market.
Also this week, a number of companies are reporting their annual results including retirement village operator Ryman Healthcare, property companies Kiwi Property Group and Goodman Property and infrastructure investor Infratil.
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