Wednesday, 10 July 2019 10:55

Forecasts steady as demand holds

Written by  Pam Tipa
Global demand for milk remains strong. Global demand for milk remains strong.

Banks are mainly holding firm on their forecasts of $7/kgMS despite last week’s flat Global Dairy Trade result – a small decline of 0.4% in the overall price index.

However Westpac has gone 30c lower to $6.90/kgMS. Fonterra’s forecast range is $6.25 to $7.25/kgMS.

Rabobank dairy analyst Emma Higgins says the GDT results weakened for the fourth time in a row driven by weaker fat prices. 

“The recalibration of dairy fat prices has continued with butter taking a haircut by almost 5% to land at US$4339/tonne,” she says.  Anhydrous milk fat (AMF) prices softened by almost 2% to US$5433/t.  

“Pleasingly for powders – and also, importantly, the bulk of the volume on offer at the GDT Event – whole milk powder (WMP) saw no change in this auction compared to the last (US$2969/t) while skim milk powder (SMP) saw a boost of 3.2% to US$2430/t.” 

Higgins says the GDT results are actually not too bad with the new 2019-20 production season a couple of months away from ramping up.

“Chinese import appetite was stronger than expected through the first four months of 2019 and some buyers are likely to have adequate coverage,” she says. But Chinese demand was expected to remain firm.

“Importantly, though, our forecasts suggest less milk volume will be available from the southern hemisphere exporting countries over the second half of 2019,” Higgins says. Oceania dairy prices are expected to rebound off the back of this.

Rabobank still sees a possible farmgate milk price forecast of $7.15/kgMS.

ANZ rural economist Susan Kilsby says the direction of price movements was largely as expected (based on futures going into the event) although the WMP result was a tad stronger than expected. 

“This result will be welcomed by NZ producers as from now on the volume of product on offer will lift, aligned with the seasonal milk production curve.”

Current prices are close to the average level traded attained on GDT in the last few years.

ASB senior rural economist Nathan Penny is holding the bank’s current 2019-20 forecast at $7/kgMS. 

But he says forecasts at this time of the season always come with a wide range of error. ASB’s range would be $6.50/kgMS to $7.50/kgMS versus Fonterra’s range of $6.25 to $7.25/kgMS.

Penny says global dairy markets are on the whole tight. NZ production growth is past its cyclical peak and production growth in other major dairy exporters is soft.

“On this basis we anticipate that dairy prices can push towards cyclical highs later in the season. 

“Accordingly the NZ spring will be important for setting the direction for prices.”

If domestic production is softer this year than in 2018, dairy buyers are likely to be caught short “given many buyers appear to be currently living hand to mouth”.

Westpac senior economist Satish Ranchhod said they were always expecting auction prices to fall during the course of this year. 

“However, this has come through faster than we anticipated. We are therefore lowering our farmgate milk price forecast for the 2019-2020 season to $6.90/kg (down from $7.20). 

“Looking ahead, growth in overseas dairy supply is likely to be limited over the remainder of this year. That’s in part related to dry conditions in Australia and the lingering impacts of last summer’s drought conditions in Europe.

“In contrast, NZ production is looking firmer: New Zealand milk production was up 2.4% last year and NZX is forecasting milk solid levels to be up 0.4% over the 2019-2020 season.

“Demand conditions appear to have remained firm, including demand from key markets like China. That’s despite the broader softness seen in global economic activity in recent months.”

More like this

NZ household food waste falls again

Kiwis are wasting less of their food than they were two years ago, and this has been enough to push New Zealand’s total household food waste bill lower, the 2025 Rabobank KiwiHarvest Food Waste survey has found.

Featured

'One more push' to eliminate FE

Beef + Lamb New Zealand (B+LNZ) is calling on farmers from all regions to take part in the final season of the Sheep Poo Study aiming to build a clearer picture of how facial eczema (FE) affects farms across New Zealand.

Winston Peters questions Fonterra divestment plan

Foreign Affairs Minister Winston Peters has joined the debate around the proposed sale of Fonterra’s consumer and related businesses, demanding answers from the co-operative around its milk supply deal with the buyer, Lactalis.

National

Machinery & Products

New McHale terra drive axle option

Well-known for its Fusion baler wrapper combination, Irish manufacturer McHale has launched an interesting option at the recent Irish Ploughing…

Amazone unveils flagship spreader

With the price of fertiliser still significantly higher than 2024, there is an increased onus on ensuring its spread accurately at…

» Latest Print Issues Online

Milking It

Tough times

OPINION: Dairy industry players are also falling by the wayside as the economic downturn bites around the country.

MSA triumph

OPINION: Methane Science Accord, a farmer-led organisation advocating for zero tax on ruminant methane, will be quietly celebrating its first…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter