4 Prices Received and Paid

4.1 Milk Payment

Owner-operators received an average cash payout of $6.42 per kilogram milksolids sold for 2018-19 (net of the industry good levy, but includes advances, final payments, and dividends). This was 20 cents less than 2017-18. Farmgate milk prices in June 2018 were positive as farmers started a new season, with the Fonterra forecast of $7.00/kgMS.

International dairy prices for 2018-19 (as seen in Figure 4.1) were generally similar for powder products at May 2019 to levels in May 2018, despite fluctuations over the year. Whole milk powder (WMP) finished at $3,300 (+$0), and butter, finished at $5,510 (-$90), relatively unchanged with respect to the May 2018 prices. On the other hand, skim milk powder (SMP) finished strong at $2,553 (+$593) and cheese finished at $4,250 (+$425).

The NZD:USD exchange rate closed the 2018-19 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 2017-18 (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 42% of New Zealand’s dairy export earnings in 2018-19, which was the same in the 2017-18 (39%). Skim milk powder decreased to 7% of export earnings. Cheese export earnings decreased slightly to 12% of total dairy export earnings (from 13%), while butter increased for the third season in a row from 12% to 15% percent. Casein revenue declined to 8% (previously 9%). Anhydrous milk fat accounted for 10% of dairy export earnings in 2018-19 (previously 10%).

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

The milk payout of $6.42 per kilogram milksolids in 2018-19 was 29 cents below the decade average in inflation-adjusted terms ($6.71) (Figure 4.2). While similar to the decade average, the modest decrease from 2017-18 was some respite for farmers given volatility over the previous few seasons. Average payout over the past 20 years, in real terms, was $6.45 per kilogram milksolids.

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

4.2 Livestock Prices

The value of mixed aged cows declined slightly to $1,513 (-1%) in the 2018-19 season as milk prices stabilised. Cow values, in nominal terms, were below the decade-average of $1,664. 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.

Figure 4.3: Trend in Cow Values Relative to Milk Payout

4.3 Feed and Fertiliser Prices

Feed and fertiliser prices between 2009-10 and 2018-19 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 decreased 1 percent from 1.91 million tonnes to 1.89 million tonnes in the year to June 2019.

Figure 4.4: Feed Prices

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 (+$102 and +$43 per tonne respectively). Superphosphate had declined $15 per tonne. Over the longer term (9 years) there has been a downward trend in fertiliser prices, despite a peak in 2012.

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 2019, the average price for inputs remained nearly unchanged (2.9%) after three seasons of lower or stable input prices. The price movements of individual categories for the 2018-19 season are shown in Figure 4.6. Decreases in individual price categories such as livestock purchases (-2.2%) and supplementary feed (-1.9%) were not enough to offset increases in other areas of expenditure. Increases included fertiliser (+10.4%), electricity (+6.3%), animal health (+5.7%), and others, leading to an overall 2.9% change for the season.

Figure 4.6: Dairy Input Price Changes – June 2018 to June 2019

The Producer Price Index (Stats NZ NZSIOC Level 3, June 2018 to June 2019) was up by 2.4% as seen in Figure 4.7. This slight increase in input prices was less than in 2017-18, 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 (+1.7%) in the same period.

Figure 4.7: Dairy Farm Producer Price Index and CPI Changes – June 2018 to June 2019