Daring to mention $7/kgMS

There were “many moving parts” and the new dairy season was only seven days old, he said, commenting to Dairy News last week.

But overall the outlook is positive for dairy farmer and New Zealand income, he says.

“From a macroeconomic perspective, higher dairy prices is one reason we think NZ’s terms of trade will hit an all-time high in 2017.”  

Indications are an upside risk to BNZ’s $6/kgMS milk price forecast for the 2017-18 season.

“Indeed, on our calculations, if current pricing persists for the whole season, something around $7 is possible.

“But we remain wary of more milk production over the coming year (in NZ, EU and US) because recent pricing encourages supply (as does low grain prices). This is expected to weigh on dairy product prices over the coming season.”

The dip in the WMP prices at last week’s auction fits with this thinking.

“We are also conscious of the NZD pushing higher of late, up 3.5% since the previous auction, which, if sustained, would be a negative for milk price computations. On the plus side, demand indicators look solid.

“There remain many moving parts and the new NZ dairy season is merely seven days old.” 

Details of last week’s event were generally in line with BNZ’s expectations, including:

- A near 3% fall in WMP prices, with an average price of US$3143/t, as more volume was forecast for later in the year.

- An almost 8% rise in SMP, following gains elsewhere likely related to peak EU milk production being dented by poor weather and a lift in import quotas in Japan.

- Fat prices remaining strong, including those for butter. Current tightness in the butter market is obvious with near term prices spiking up above US$6300/t, while product priced for a few months’ ahead was marked nearly $1000/t cheaper.