Milk Glut Drags Fonterra Forecast Down to $9.20/kgMS
A milk glut around the world shows no sign of easing, putting downward pressure on farmgate milk prices for the next few months.
ASB is forecasting a milk price of $9.75/kgMS while Fonterra lifted its forecast milk price range last month to $9.50 to $10.50/kgMS with a midpoint of $10/kgMS.
Tennent-Brown says that like Fonterra, they will be keeping a careful watch on the global supply and demand dynamics over the coming months.
"We see a balance of risks around our $9.75 pick, with some of those risks pointing to a milk price closer to Fonterra's midpoint, even if prices ease a little bit more from current levels.
"The lower NZD can help this year's milk price at the margin but can be a bigger help for the next season if the weakness continues and is captured as we expect within Fonterra's FX hedging."
WMP prices, which has the biggest impact on Fonterra's milk price, have dropped in the last two consecutive auctions. The first auction of 2025 saw WMP slip 2.1% and skim milk powder 2.2%.
WMP sits at US$3804/tonne - the highest level since July 2022, when it was fetching US$3961/t.
Tennent-Brown says that WMP prices have been declining from the recent peak, but remain significantly higher than a year ago, and above long run averages.
The latest GDT auction saw the price index ease 1.4% to an average price of US$4,029/t.
NZX dairy analyst Rosalind Crickett says the index movement was weighed down by decreases seen to the milk powder products, despite lifts to butter and cheese products - with results spot on with their pre-event expectations.
"In what normally is a quieter start to the year, 87% of product on offer was still sold, but saw weaker demand from both North Asia and the Southeast Asia/Oceania regions."
Crickett says that despite there being -15.7% less WMP and -15% less SMP on offer since the last event, traders have been describing a "hand to mouth" purchasing pattern by regions over the holiday period.
