Flat dairy prices is good news

Large price gains in recent GDT auctions remain intact and buyers from the South Asian region, outside China, are buying more of our products.

Westpac senior agri economist Nathan Penny says the results cement the big price gains over March: whole milk powder prices, unchanged last week, are now up 28% over 2021.

Looking back to 2020, WMP prices now sit 44% higher than as at the same auction last year.

Penny notes that five out of seven products posted price gains at last week's auction.

Butter milk powder (BMP) prices led the way jumping 17.6%, cheddar and butter posted solid gains of around 2%, while anhydrous milk fat and skim milk powder price nudged higher 0.8% and 0.6% respectively.

Penny says the result is consistent with its 2020-21 milk price forecast of $7.90/kgMS.

However, he notes upside risks to the 2021-22 forecast of $7.25/kgMS.

"This upside risk reflects the extent of the recent auction price surge and the pullback in the New Zealand dollar against the US dollar over the last few weeks," he says.

RaboResearch senior analyst Emma Higgins says the GDT result should be read as a good result for NZ dairy farmers.

She notes that WMP prices have remained static in the face of more powder being available to buyers on the GDT than usual for this time of year.

Demand from China remains steady and while some buyers might have taken a step back in the face of high prices, buying appetite is still much stronger than in previous auctions for this time of the year. As a region, China bought the majority of dairy on offer at last week's auction as usual.

"The interesting past is that while the total volume of dairy products bought was less than last month, the volumes were significantly higher compared to the first auction in April 2020 (Covid-19 impacted perhaps) and also April 2018 and April 2017," says Higgins.

"Again, this is a pretty good result given the powder volumes available."

ASB economist Nat Keall notes that the GDT results were more bullish than the futures market had been anticipating.

"Given the lofty highs prices have already reached, this is another strong result," says Keall.

With the longer-dated contracts still trading at high levels, it's a sign that prices have a bit of momentum into the next season, says Keall.

"Recent price gains have been led by strong demand from China, but this auction saw other regions return to the party.

"With stockpiles not keeping up with rising consumption, and shipping fears continuing to weigh, the North Asia region (a proxy for China) has dominated recent auctions, driving April's price gains.

"This auction saw Chinese buyers take their foot off the accelerator, but other regions (particularly South East Asia and Oceania) stepped into the breach, keeping prices supported.

"The auction suggests aggressive Chinese purchasing is likely to ease further, at least in the near term."

This may result in prices easing a bit over the next auctions. Still, strong post-pandemic global demand and softer Northern Hemisphere production should keep prices from falling too far.

ASB is retaining its $7.60 forecast for the 20/21 season, and $7.30 opening forecast for 2021/22.