Dairy farmers could turn a profit this season - AgriHQ

AgriHQ said its theoretical milk price for the 2016-17 season has rocketed to $5.46/kg of milksolids (MS). Photo / Bloomberg

The odds of dairy farmers making a profit this season have greatly improved after this week's very strong GlobalDairyTrade (GDT), AgriHQ said.

AgriHQ said its theoretical milk price for the 2016-17 season has rocketed to $5.46/kg of milksolids (MS), driven by yesterday's GDT results and a buoyant futures market.

"The odds of making a profit this season have improved considerably over the past month, with two positive GDT events and on-going lifts in futures prices on the NZX dairy derivatives market," AgriHQ dairy analyst Susan Kilsby said in a commentary.

"The lift of 82c to the AgriHQ price suddenly has things feeling a lot less gloomy than just a few months ago, or even just two weeks ago," she said.

The GDT results contributed 10c to the lift in the milk price but most of the change was driven by the futures market.

AgriHQ uses the futures prices as an indicator of where prices are likely to head for the remainder of the season.

Kilsby said that for AgriHQ's milk price to be attained then GDT prices must follow an the upward price trend indicated by the futures contracts.

Futures prices have been trending up since the August 2 auction and continued to lift yesterday. At the close of business yesterday the futures market had WMP priced at US$2870/t in December and lifting to US$3,000/t by July 2017.

Fonterra's farmgate milk price for for 2016/7 is $4.25 a kg - wel down from the estimated break even point of $5.05/kg.

The co-ooperative is expected to issue a review its forecast on or before the release of its annual result on September 22.

In a separate statement, Fonterra confirmed that it would pay a further 10 cents per share of its previously announced 2015/16 forecast dividend of 40 cents per share, as earlier advised.

Fonterra Chairman John Wilson said the co-operative's intention was to always declare a further dividend in August, subject to financial performance supporting the forecast earnings per share range of 45 to 55 cents.

"We are seeing early signs of the expected recovery in dairy prices but we know conditions on farm are challenging," he said.

World dairy prices rallied sharply at Wednesday's GDT auction, driven mostly by double digit gains in whole milk powder and butter milk powder. Overall, the GDT price index gained by 12.7 per cent since the last sale on August 3.

Wholemilk powder prices - which have the biggest bearing on Fonterra's farm gate milk price - jumped by 18.9 per cent to US$2695 a tonne.