Prices face upside risk despite GDT price dip
After five consecutive rises, whole milk powder prices dipped in the latest Global Dairy Trade (GDT) auction.
Dairy prices have risen for five consecutive Global Dairy Trade (GDT) auctions, which augurs well for this season’s milk price.
Westpac senior economist Michael Gordon notes that gains in powder prices last week were broadly in line with what futures markets had anticipated.
“In contrast, milkfat prices held up better than the futures market had signalled, with anhydrous milkfat (AMF) setting another record high and butter closing in on its previous peaks. As we’ve seen in recent auctions, China was a significant buyer, although less present than they have been in past years. Buyers from Southeast Asia and the Middle East increased their share of WMP purchases, while Chinese demand was more notable in butter,” says Gordon.
Westpac is forecasting a milk price of $8.40/kgMS for this season. Fonterra has taken a more conservative route, opening with a range of $7.25 to $8.75, giving a midpoint of $8/kgMS.
Gordon notes that Fonterra’s forecast is a relatively conservative view compared to its existing forecast of $8.40/kgMS – a view that they’ve held since March, when GDT auction prices were somewhat lower than they are today.
“Futures markets are closer to our view, currently pricing a return of $8.55/kgMS. Indeed, Fonterra acknowledged that they’ve taken a cautious view at this stage, citing uncertainty around key factors such as the strength of Chinese consumer demand.”
Explaining the bank’s forecast, Gordon says they are assuming that milk powder prices hold at around their current levels on average over the season.
“That’s a reasonable baseline given that powder prices are around their long-term averages at the moment – so they’re neither looking particularly stretched nor unsustainably low.
“What’s more, the global milk market seems to be reasonably balanced as the new season begins, and both demand and production are expected to record only modest growth in the year ahead.”
But there’s one clear area where upside risks to the bank’s milk price forecast are emerging.
Gordon says milkfat prices have surged in recent months and are at or near record highs.
“Our farmgate price forecast assumes that this isn’t going to be maintained, and that milkfat prices will ease back over the course of the season.”
As storms and flooding continue to batter the East Coast, the Insurance & Financial Services Ombudsman has issued advice for those impacted and looking to claim with their insurer.
Federated Farmers Gisborne/Wairoa president Charlie Reynolds says farmers are in need of emotional support after rain, wind and flooding hit the region this week.
Minister for Emergency Management Mark Mitchell says the Mayoral Fund has been triggered, activating $300,000 for regional recovery after severe weather hit the East Coast this week.
States of Emergency have been declared in Haumoana, Wairoa and Hastings after storms have once again battered the East Coast of the North Island.
Dairy processors are happy with the Government’s move to reduce redtape for exporters.
The fortunes of the dairy industry are expected to bounce back in about a year’s time, according to the Director General of the Ministry for Primary Industries (MPI), Ray Smith.
OPINION: Synlait's woes continue to drag the company down. The listed milk processor’s share price dropped to an all-time low…
OPINION: Industry-good bodies have had a torrid time recently, with some facing backlash from farmers particularly over their stance on…