4 Prices Received and Paid

4.1 Milk Payment

Owner-operators received an average cash payout of $7.05 per kilogram milksolids sold for 2019-20 (net of the industry good levy, but includes advances and final payments). This was 63 cents more than 2018-19. The Fonterra average farmgate milk payout was $7.14, 9 cents higher than the average cash payout.

International dairy prices for 2019-20 (as seen in Figure 4.1) were lower for all dairy products reported at May 2020 compared to levels in May 2019, despite fluctuations over the year. Whole milk powder (WMP) finished at $2,745 (-$555), and skim milk powder (SMP) finished at $2,373 (-$180). Butter finished at $3,867 (-$1,643), the greatest decrease with respect to the May 2019 prices. Cheese finished at $4,115 (-$135), the smallest decrease relative to May 2019 prices.

The NZD:USD exchange rate closed the 2019-20 season 5 cents lower than it started, finishing at 61 cents, with an average of 64 cents throughout the season, a lower average than 2018-19 (71 cents). The exchange rate in the last four seasons has been favourable for exporters and compares to 79 cents in 2014-15. Dairy contributed 33.05% to merchandise exports and 23.09% to total exports from New Zealand for 2019-20 season. Whole milk powder comprised 42% of New Zealand’s dairy export earnings in 2018-19 season, which was the same in the 2018-19 season (39%). Skim milk powder increased to 9% of export earnings, up from 7% in 2018-19. Cheese export earnings remained unchanged at 12% of total dairy export earnings, while butter decreased for the first time in four season in a row from 15% in 2018-19 to 10% this season. Casein revenue increased to 9% (previously 8%). Anhydrous milk fat accounted for 9% of dairy export earnings in 2019-20 (previously 10%).

Figure 4.1: World Milk Commodity Prices ($US per tonne)

The milk payout of $7.05 per kilogram milksolids in 2019-20 was 63 cents above the decade average in inflation-adjusted terms ($6.46) (Figure 4.2). The increase in the milk payout per kilogram milksolids from 2018-19 was a continued respite for farmers given volatility over the previous few seasons. Average payout over the past 20 years, in real terms, was $6.72 per kilogram milksolids.

Figure 4.2: Trend in Milk Payout (Nominal and Real)

4.2 Livestock Prices

The value of mixed aged cows remained relatively unchanged declining slightly to $1,513 (-$16) in the 2019-20 season, relative to the 2018-19 season. Cow values, in nominal terms, were below the decade-average of $1,684. Historically, cow values have followed the trend in milk prices, often with a slight time lag.

Figure 4.3: Trend in Cow Values Relative to Milk Payout

4.3 Feed and Fertiliser Prices

Feed and fertiliser prices between 2010-11 and 2019-20 are shown in Figures 4.4 and 4.5. Prices for wheat and barley remained relatively unchanged over the year, closing about $10 and $14 respectively per tonne lower. Palm kernel prices increased across the season, climbing in February to close about $87 per tonne higher. PKE imports decreased nearly 4 percent from 1.89 million tonnes to 1.82 million tonnes in the year to June 2020.

Figure 4.4: Feed Prices

Over the course of the year there was a fluctuation in the DAP prices, but the closing price of DAP, Superphsophate and Urea all decreased relative to the close of the previous season. There was an increase in the price of DAP prices in the middle of the season, up to $788 per tonne, though DAP finished $32 lower than the start the season. Across the season, the price of Urea declined the most, closing $59 per tonne lower than the start of the season. Superphosphate remained relatively unchanged across the season, declining $7 per tonne.

Figure 4.5: Fertiliser Prices

4.4 On-farm Inflation

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 2020, the average price for inputs increased (+6.6%) after four seasons of lower or stable input prices. The price movements of individual categories for the 2019-20 season are shown in Figure 4.6. Decreases in individual price categories such as fuel (-22.4%) and interest rates (-12.2%) were not enough to offset increases in other areas of expenditure. The most notable increases included stock grazing (+26.3%), supplementary feed (+16%), livestock purchase (+6.3%), leading to an overall 6.6% change in the Farm Expense Index for the season.

Figure 4.6: Dairy Input Price Changes

The Producer Price Index (Stats NZ NZSIOC Level 3, June 2019 to June 2020) was up by 5.9% as seen in Figure 4.7. This increase in input prices was more than in 2017-18 and 2018-19, 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.

Figure 4.7: Dairy Farm Producer Price Index and CPI Changes