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Westland Milk unveils 'optimistic' dairy price outlook

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Westland Milk Products backed ideas of a dairy price recovery kicking in later this year, even as Fonterra highlighted an "increasing" trend in purchases by key importer China at a benchmark auction.

Westland Milk, New Zealand's second-biggest dairy co-operative after Fonterra, forecast that its farmers would receive NZ$5.60-6.00 per kilogramme of milk solids for 2015-16, which starts next month – up from the NZ$4.90-5.10 expected for this season.

The increased payout - which would take many farmers back into profit, with breakeven estimated by industry group DairyNZ at roughly NZ$5.40 per kilogramme of milk solids – is more generous than many in the market are expecting.

Rod Quin, the Westland Milk chief executive, said that the forecast "might be more optimistic than some in the New Zealand dairy industry", the world's top milk exporter.

However, the estimate represented a "considered forecast of the expected outcomes for the approaching season", including outcomes for the three key uncertainties: Chinese imports; Russian imports, which have been limited by sanctions; and the impact on European Union milk output of the removal of production quotas.

China debate

Westland said that it expects dairy prices "to start on the road to recovery later in 2015", a forecast which tallies with expectations from many observers, including dairy giant Danone and banks ANZ and Rabobank - although US officials last week raised doubts over the timescale.

A revival in dairy export prices "may be slower than many farmers and commentators are hoping for", the US Department of Agriculture bureau in Wellington said, cautioning that Chinese imports, which sent the market soaring in 2013-14, may be slower to perk up than many analysts foresee.

Westland forecast that "Chinese whole milk powder buyers are expected to return with more demand in early 2016", terming this a "bright spot" for dairy market prospects.

"That said, we don't expect large price increases - rather a recovery for milk powders by the end of the season to a figure around $3,000 a tonne," Mr Quin said.

'China purchase volumes increasing'

Separately, Fonterra, which processes more than 80% of New Zealand milk, said that it had already detected signs of improved Chinese appetite for dairy products at the co-operative's twice-monthly GlobalDairyTrade auctions – even as prices have fallen to their lowest since 2009.

"In recent trading events, China purchase volumes have been increasing," Fonterra said, although volumes bought by buyers from South East Asia, the Middle East and Africa have been decreasing.

Nonetheless, any uptick in buying has yet to show up in trade data, with Chinese dairy imports for March down 34% year on year, driven by a 67% slump in buy-ins of whole milk powder, and a 47% drop in skim milk powder purchases.

North-South divide

Fonterra's comments came as it revealed that its milk collections in New Zealand, a proxy for domestic production, had risen by 7.7% year on year to 116m kilogrammes of milk solids last month, reflecting better conditions on North Island, where volumes soared 22%.

"Widespread rain across most dairying regions, in excess of 100mm, has provided a boost to milk volumes" on North Island, the co-operative said.

In South Island, volumes dropped by 6.4%, as "soil moisture remains low across most South Island dairying regions".

The co-operative's total New Zealand milk collections for the first 11 months of 2014-15, at 1.55bn kilogrammes of milk solids, were up 1.5% year on year.

By Agrimoney.com

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