Nathan Penny's 'cautiously optimistic' milk price forecast

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ASB rural economist Nathan Penny is sticking to his $6.50 milk price forecast for the upcoming 2020/21 season, despite Rabobank's recent drop to $5.60.

"Cautiously optimistic is probably the way to describe it" Penny told The Country's Jamie Mackay.

The New Zealand dollar had helped Penny stick to his guns, as well as seeing "dairy hang in there" over the last few months, weathering price falls better than other commodities such as oil.

In its report New Zealand Dairy Seasonal Outlook: Battening down the Hatches, Rabobank raised concerns over a 40 per cent drop in demand from China, due to a build up of inventory in that country.

Penny was not as "pessimistic" about this, saying food would be a priority for households around the world during a global recession.

ASB rural economist Nathan Penny. Photo / Supplied

"It is a good time to be a food producer ... my view is that there will still be a base level of demand, if not, we won't be extracting the premiums that we're used to."

However, Penny admitted uncertainly surrounding Covid-19 meant that there was still a risk of a sub-$6 forecast.

"There's still so much we don't know about the next season and the season after even. With Covid-19 there's so many things we're confronting for the first time."

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One thing farmers could be certain of was that it paid to be prepared, said Penny.

"Farmers have probably had their low payout season business plan on ice for a little while. I think it pays to dust that off and update it and have it handy just in case."

It was also really important for farmers to stay informed said Penny.

"Farmers really need to be talking to their advisers, their suppliers and being in regular contact, just because everything's just changing so darned fast. What we're talking about today may not apply in a couple of week's time."

Also in today's interview: Penny talked about the challenges facing the meat industry , including processing and falling prices.