The Country 16/06/25: Emma Higgins talks to Jamie Mackay

Rabobank’s senior dairy analyst comments on the bank’s latest Dairy Quarterly (Q2) Report - Too Good To Be True? And despite a strong start to 2025, downside risks are expected to emerge over the coming months. 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
It is hot off the press. It's Rabobanks's latest global
dairy quarterly report. This one is Q two and it's
subtitled too Good to be True downside risks expected to
emerge overcoming months. The author is Emma Higgins. I jokingly
refer to her occasionally as the Grim Reaper. I just

(00:21):
think you're being pragmatic and practical here, Emma.

Speaker 2 (00:25):
Well, thank you, Jamie. Also, I feel like you've upgraded
my nickname from the Grinch the grim Reaper, So that's
quite a quite a moniker to hold going forward. But look,
I think we do need to be pragmatic. So we
have seen the announcement come out of ten dollars for

(00:45):
twenty six and this follows a twenty four to twenty
five season also with double digits. Great news to the
dairy industry. But it's what we do with these improved
cash flows that will set us up for more volatile
times a heare, which is really important. So my messages
out there are yet greatly Take that ten dollars headline absolutely,

(01:07):
But what would it look like if we saw perhaps
some weakness come through, maybe nine to fifty to ten
fifty or nine to fifty to ten dollars at least
is somewhere where we should be sitting and thinking about
in anticipation for the global uncertainty that is right now.

Speaker 1 (01:23):
So apologies, Ema, I didn't mean to upgrade you from
a grinch to a grim reaper. But what I do
appreciate from you and the team is at Rabobank is
you do normally take a cautious or conservative line, which
I think is exactly the right thing to do when
you're trying to forecast this. You have come out at
ten dollars as a twenty five twenty six forecast. Are

(01:46):
you going to stick with that?

Speaker 2 (01:49):
So actually, when we were forecasting for the twenty five
to twenty six seasons, the one that we've just started,
I came out at nine fifty thinking.

Speaker 1 (01:57):
That apologies again, I've got to apologize.

Speaker 2 (02:01):
It's fine, Jamie. Look nine fifty, ten dollars, you know,
it's all rounding. But in reality, when we look at
Voluntier's range, the forecasts an exceptionally wide range, so eight
bucks to eleven. The midpoint of that is nine fifty,
but they have priced it's slightly high in that and
that's what they've moved away from the line. Of the
midpoint of the range, and now it's just a forecast

(02:24):
at ten bucks. Look, we need to talk about market
volatility because there are other companies that have come out
a little bit lower than that ten dollars figure, citing
uncertainty and particularly with regards to geopolitics where I'm watching.
These are the factors, and the point is that I'm
watching for Jamie when it comes to milk price needle movers.

(02:47):
Number one, it's what's happening on the demand side. If
we look at it from the hard data perspective, we've
seen some challenging or some cautionary tales come out of
some markets and some channels so far. We look at
McDonald's results in quarter one recently announced same store sales
shrank over three point five percent, which was the worst

(03:08):
result in the United States since the COVID nineteen lockdowns.
We have seen them specifically cite medium to low income
consumers really under pressure. And that follows other challenging results
coming out of the likes of Starbucks in China and
also young brands with respect to Pizzahart as well. And

(03:28):
then we overlay that with some of our soft data
so confidence results that have also come out the United
States recently were at their second to lowest levels ever recorded.
So there are some certainly some worrying signals out there
on that demand side that we're watching really closely because
that could be really impactful for demand for our dairy products.

Speaker 1 (03:50):
So what about the production side of the equation, the supply.

Speaker 2 (03:54):
Side, That is the good news story, right, that's the
bright spark, and that's the part that's really really holding
a strong floor for commodity prices and for a milk
prices in turn. So globally there is not a tidal
wave of milk out there. In saying that, we expect
that to grow by one percent from the major exporting

(04:15):
countries this year in twenty twenty five, so the tide
is gathering pace, but we don't think it's going to
be a tidal wave that will overwhelm market so to speak.
New Zealand is probably one of the you know, the
areas that has shown the most growth in recent times.
We expect that to continue given the Heimert price book

(04:35):
cast here in New Zealand with the permitting, but also
expecting growth out of the United States, South America and
then also parts of Europe as well, so the tight
global supply of the last three years has been really helpful.
That tide is starting to turn, and again it's how
that matches up with weak demand that we're really cautious about.

Speaker 1 (04:56):
Yeah, because traditionally when the price gets up there the
tep gets turned on in nations such as the US.

Speaker 2 (05:03):
Yeah, that's right. So we are seeing great farm gate
prices here, similar story elsewhere as we're ol sphere as well.
So most of the producers that we track in those
Big seven economies are looking at producing more thanks to
higher farm gate prices. So yeah, really it's a good
news story here for now, But it's what can we

(05:24):
do with that improved cash flow to set our businesses
up for what looks like an increasingly global volatility or
global volatile time ahead. And you know, we've seen headlines
on the daily right now with even in regards to
what's happened over the weekend between Israel and Iran, and

(05:44):
there are some challenges absolutely at that mac pro level
when it comes to geopolitics, which is in turn helping to.

Speaker 1 (05:50):
Drive market Emma Higgins always good to chat. Great to
catch up with you at Field days as well. From
Rabobank thanks Jamie,