The Weekly Dairy Report: At last the market turns but analysts caution there is a long way to go yet

More rain is predicted for the country this week as soil moisture levels now look very much like last year and temperatures lift, and in the south the Opuha Dam is refilling fast with more to come from foothills full of snow.

The drought regions are still struggling, and in the worst areas only a small percentage of previous stock numbers have returned back home to depleted pastures.

The government has increased its contribution to the support services as drought recovery is estimated to take at least a couple of years.

Calving of dairy cows is now starting in earnest, and many farmers are culling late calving cows to the saleyards as they destock to a mainly pasture-only diet.

More bobby calves are being raised as managers lift the importance of beef in their farms portfolio, and AI specialists warn that it is false economy to return to natural mating.

The reality of the market situation is now ramping home; the new dairy catch-cry is “managing the loss” as the predicted payout is the lowest since 2002 and costs since then have increased by $1/kg ms and debt doubled.

Fonterra has cut the volumes to be sold via the auction and two other participants have withdrawn completely as questions are building on the suitability of this selling method in such a weak market.

There have been signs that the bottom is near however, with dairy futures showing lifts later in the year, and some analysts suggesting the big cow kill and El Nino predictions will see a big fall in milk flow and consequent lift in prices.

And at last the market has turned, with a big lift at last nights auction to the huge relief from all in the dairy sector, as whole milk powder prices rose by 19% to lead the recovery.

With this being the first rise  after 10 consecutive falls and the overall lift significant at 14.8%, hope will be reinstated as farmers work through the long hours of calving and out of a wet cold winter.

Analysts reminded us that this is just one small step in the turnaround, and whole milk powder prices need to lift further if Fonterra’s $3.85 forecast is to be met, and lower production figures may be just as important both here and globally, to sustain any recovery.

Also helpful has been the partial lifting of bans for export of dairy ingredients into Russia, after the restrictions were imposed during the botulism outbreak.

The Government also expressed concerns about Landcorp’s debt, especially associated with the significant dairy conversions they are undertaking converting forestry land back to dairy, and suggested they may have to sell some property if they wanted to continue this expansion in the sector.