Owner-operators received an average cash payout of $6.68 per kilogram milksolids sold for 2017-18 (net of the industry good levy, but includes advances, final payments, and dividends). This was an additional $0.21 compared with 2016-17. Farmgate milk prices in June 2017 were reasonable as farmers started a new season, with the Fonterra forecast of $6.00/kgMS. Breakeven milk price was estimated at $a.aa at the time and therefore farmers were expecting to be profitable.
International dairy prices for 2017-18 (as seen in Figure 4.1) were generally similar for powder products at May 2018 to levels in May 2017, despite fluctuations over the year. WMP finished at $3,300 (+$100), and SMP finished at $1,960 (-$65). On the other hand, Cheese finished stronger at $3,825 (+$375) and Butter, which finished at $5,600, around $710/t higher.
The NZD:USD exchange rate closed the 2017-18 season at the same level as it started, finishing at 69 cents with an average of 71 cents throughout the season, a similar average to 2016-17 (71 cents). The exchange rate in the last three seasons has been favourable for exporters and compares to 79 cents in 2014-15.
Whole milk powder comprised 39% of New Zealand’s dairy export earnings in 2017-18, which was the same in the 2016-17 (39%). Skim milk powder decreased to 7% from 9% of export earnings. Cheese export earnings decreased slightly to 13% of total dairy export earnings (from 14%), while butter increased for the third season in a row from 15% to 12% per cent. Casein revenue declined to 9% (previously 11%). Anhydrous milk fat accounted for 10% of dairy export earnings in 2017-18 (previously 9%).
The milk payout of $6.68 per kilogram milksolids in 2016-17 was 4 cents above the decade average in inflation-adjusted terms ($6.64) (Figure 4.2). While similar to the decade average, the modest increase from 2016-17 was encouraging for farmers given volatility over the previous few seasons. Average payout over the past 20 years, in real terms, was $6.40 per kilogram milksolids.
The value of mixed aged cows declined slightly to $1,529 (-7%) in the 2017-18 season as milk prices stabilised. Cow values, in nominal terms, were below the decade-average of $1,726. Figure 4.3 shows there has been a reasonably strong relationship between milk prices and the value of cows. Historically, cow values have followed the trend in milk prices, often with a slight time lag.
Feed and fertiliser prices between 2009-10 and 2017-18 are shown in Figures 4.4 and 4.5. Prices for wheat and barley climbed strongly over the year, closing about $75 per tonne higher. Palm kernel prices dipped early in the season, before climbing again to close about $25 per tonne higher.
PKE imports increased x.x per cent from 1.91 million tonnes to 1.xx million tonnes in the year to June 2018. A BLAH spring in many parts of the country coupled with a BLAH summer in some areas, meant that feed was in short supply for some farmers and likely led to increased imports of PKE in the second half of the season. The increase in milk prices helped eased the impact of needing to purchase supplementary feed, but this additional feed did not result in increased production as overall New Zealand production was down y per cent.
There was a dip in fertiliser prices in the first half of the season, though Urea and DAP finished higher than they started the season (+$16 and +$19 per tonne respectively). Superphosphate had declined -$11 per tonne. Over the longer term (9 years) there has been a downward trend in fertiliser prices, despite a peak in 2012. For DAP, this meant an -$39 per tonne reduction, whereas Urea and Superphoshate declined by -$127 and -$94 per tonne respectively.
The movement in on-farm input prices is compiled by Statistics New Zealand in the Farm Expenses Price Index for dairy farms. The percentage movement of each category is weighted by a three-year rolling average of the contribution of each category to total expenditure. In the year to June 2018, the average price for inputs remained nearly unchanged (0.2%) after three seasons of lower or stable input prices. The price movements of individual categories for the 2017-18 season are shown in Figure 4.6. Decreases in individual price categories such as stock grazing (-9.3%) and fertiliser (-2.4%) were not enough to offset increases in other areas of expenditure. Increases included fuel prices (+6.4%), rates (+4.5%), electricity (+4.4%), and others, leading to an overall 0.2% per cent change for the season. For the past five seasons fertiliser input prices have fallen and interest rates have fallen for three consecutive seasons, while fuel has increased for the last two seasons, negating the drop of the 2015-16 season.
If interest is removed, underlying prices increased slightly (+0.6%) (as seen in Figure 4.7). This slight increase in input prices was similar in 2016-17, before which there was two seasons of deflation (2014-15 and 2015-16). General inflation, as measured by the Consumers Price Index (CPI), experienced an increase (+1.5%) in the same period. Over the last ten years underlying dairy farm input prices (excluding interest rates) increased by 1.3 per cent per year on average. This was less than the general rate of inflation, which was 1.6 per cent per year.
Terms of trade is the ratio of prices received for outputs to prices paid for inputs. The ratio indicates the real purchasing power of each dollar of revenue at the farm gate relative to previous years. Terms of trade for the 2017-18 season increased x.xx per cent, mainly due to xx, refer to Table 4.1. This was the largest increase in terms of trade since the large increase in milk prices in 2007-08. It was the third consecutive year of slightly lower prices paid for inputs (inflation). Over the decade to 2017-18, the prices received for milk and livestock have increased faster than prices paid for inputs (including capital).