The end may be in sight for the shake-out in the dairy industry which has pushed milk stocks to 20 year lows as farmers have either exited the industry or slashed supplies, with farmgate prices forecast to move higher in the months ahead.
That at least is the view of Rabobank which reckons the industry should return to growth in the year ahead.
Lamb meat producers, too, should benefit from continued high prices. Beef producers though, will face declining export prices at a time when many producers are seeking to rebuild herd prices following the prolonged dry period in much of the country which resulted in a large decline in the size of the national herd.
"There is scope for higher [dairy] farmgate prices in the back half of 2016/17 though much of the benefit of higher export returns will come in 2017/18 leading to a return to profitability," it said in its agribusiness outlook survey for 2017. "As profit margins are restored, milk production should stabilise and lead to growth in 2017/18. However the capacity to grow will be limited by a smaller herd and cautious farmer."
Just how much the fortunes of the industry will revive will depend on whether dairy farmers decide to reduce borrowings or invest for growth when looking at managing the extra working capital dairy farmers have accessed over the past 18 months or so, it said.
Dairy processors will be keen to maintain milk supply amid a rising market, and the commissioning of additional processing facilities and upgrades will see heightened competition for supplies in some regions. But for makers of infant formula and also nutritional powder, intense competition will continue with the changes to regulations in China to be disruptive, at least in the short term, the survey found.
In the sheep industry, lamb production is likely to decline, which will help to support prices, the survey found.
"While an increase of lambs on the market early in 2017 as a result of stock being held over from 2016 following the wet conditions and availability of feed may see prices dip in Q1, a shortage of supply should push prices higher towards the middle of the year," it said.
For beef farmers, prices in the year ahead should fall around 20 per cent from 2016, based on lower slaughter and sale numbers, the bank forecast, with export shipments to continue to decline as the industry continues to rebuild.
"Recent high beef prices have afforded opportunities for other proteins [such as poultry, pork and goat meat] to capture greater market share and also increase prices," the survey found. "However with beef production expected to start recovering in 2017, beef retail prices may ease, increasing price competition at the retail level and limiting the upside to price increases for other proteins."
In other sectors, wheat prices will remain under pressure due to the high level of stocks, globally, while sugar prices should also decline amid rising global supply. However the price of wool will benefit from continued low supply, the survey found.
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