The latest Rabobank dairy seasonal outlook report is grim reading with a predicted hefty hit to dairy farm incomes for the new production season starting in June.
Photo: RNZ/Carol Stiles
It says farmers should work with a $5.60/kg milk solids which is at, or just below, an average farmer's break even point.
This compared with Fonterra's forecast for the season ending in May of $7 to $7.60.
Rabobank senior dairy analyst Michael Harvey said this forecast considered the whole of the next production season.
There was an upside with Chinese demand being stronger than anticipated and the dollar weaker, but Harvey warned Covid-19 meant the global dairy market would deteriorate and prices would fall and stay there for 12 months.
He cites the main reason as the peak milk production in Europe and North America being a month away and coinciding with a hit to dairy consumption.
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Harvey said customers around the world had been stocking up with dairy products which had been good for short term supply inventories, but that masked what was about to happen.
"We are working on the assumption of a three month shut down of food service channels around the world. In the EU and US (they've got) big pools of dairy so that's quite a sizeable hit and that's the imbalance we're seeing in global markets ... demand will be lower in the regions ... and that is the imbalance we are modelling into our global view."