ANZ Warns of Milk Price Risks as New Dairy Season Begins
The new dairy season is kicking off with plenty of risks to the forecast farmgate price, both upside and downside, says ANZ agricultural economist Matt Dilly.
Analysts expect prices to rebound as dry conditions in Europe hit milk production in one of the biggest milk producing regions in the world.
New Zealand milk production is also expected to take a hit due to adverse weather conditions.
Also helping prop up the milk price is a weaker New Zealand dollar and demand recovering in China after Covid lockdowns end in major cities.
ASB is still sticking to its ambitious forecast milk price of a record $10/kgMS for this season.
ASB economist Nat Keall notes that prices have had a correction over the coming months.
The whole milk powder price indices have slid 30% since the beginning of March, pushing the overall GDT index lower by a similar magnitude.
“But that’s not dissimilar to the trajectory we saw last season, where prices staged a recovery over the spring and summer,” Keall points out.
“There’s no guarantee history will repeat, but it’s a reason to be cautious and focus on broader demand and supply dynamics for signals.”
On that front, the global production outlook continue to look weak.
Keall says output among the major EU producers has been very poor through the typical peak production months.
NZ milk production isn’t faring well either.
“It’s hard to have confidence in the local production outlook at this point in the season, but we suspect buyers who are hoping for a bumper NZ season to act as an offset may well be disappointed in our view,” he says.
Keall expects NZ production finishing the season down 1-2% on 2021/22 based on where pasture growth is trending and the likelihood feed supply will remain constrained.
“We’re still sceptical any easing in dairy demand will be enough to offset the price impact of that tight supply outlook as the season wears on – the outlook for global growth isn’t that poor.
“Beyond that, the NZD remains another substantial bolster to our forecast.
Westpac is also sticking to its forecast milk price of $9.25/kgMS but adds that there are downward risks. Senior agri economist Nathan Penny also notes that global dairy supply remains very weak.
On that basis, and with the NZD/USD still supportive, we still expect a healthy milk price this season.”
On the price slump seen on GDT in recent months, Penny notes that prices have effectively been on the wane since March.
In fact, WMP prices have plunged by around a third, while overall prices are down 29%.
But he points out prices were extraordinarily high in March.
“In annual change terms, the price decline is a more modest 3.5% for overall prices and 9.8% for WMP prices.
“And looking over a longer period, the prices from overnight sit 3.4% and 2.7% above the five-year average for overall and WMP prices, respectively.”
