Financial broker OMF suggested that the average NZ dairy farmer is likely to lose more than $140,000 this season, facing a third season of weak prices. Dairy NZ estimates 85 percent of dairy farmers will make a loss, compared to 49 percent last season. According to OMF, Fonterra Cooperative might lower payouts again, pointing to a potential milk price of $3.89 per kilogram of milk solids.
Subdued demand from China and the trade embargo in Russia are set to remain the key reasons obstructing the rebalance of supply and demand in global markets. Dairy prices will continue to be weighed down by strong supply growth, especially out of the EU due to a recent removal of quotas.
In its Agribusiness Outlook 2016, Rabobank identified currency, financial volatility, the Chinese economy, climate and oil prices as swing factors that may impact the prospects for NZ agriculture in 2016.
"Dairy prices are expected to begin to pick up in the latter half of 2016, but the timing of the recovery will be driven by how quickly the brakes can be applied to global milk production," said Hayley Moynihan, general manager country banking NZ, Rabobank. "A weak and falling NZ currency will provide only partial compensation for low international dairy prices for local farmers, particularly given hedging already in place."
Besides the dairy industry, most other agricultural sectors are expected to perform well this year, particularly NZ beef, wool and horticultural products. Thanks to improved climatic conditions, average prices holding up and increased sales in the US and Chinese markets, the wine industry is also looking set for a better year.