Tuesday, 12 October 2021 07:55

Milk production softens - does this mean a record milk price?

Written by  Sudesh Kissun
ASB economist Nat Keall says dairy prices remain well above long-run averages. ASB economist Nat Keall says dairy prices remain well above long-run averages.

At least one analyst is now predicting an all-time record farmgate milk price this season.

Falling milk production in New Zealand and other key dairy producer markets mean weak global supply, and this is expected to keep prices up.

Westpac senior agri economist Nathan Penny says it has upgraded its 2021-22 farmgate milk price forecast by 75 cents to $8.50/kgMS.

If achieved, this would be a record high, surpassing the previous record of $8.40/kgMS set back in 2013-14.

Fonterra is sticking with a wide ranging milk price forecast - between $7.25 and $8.75/kgMS and a midpoint of $8.

Penny says the key catalyst for the forecast revision is the significant downgrade to NZ production forecast for the season.

"We now expect New Zealand production to fall this season, and along with soft production in other key dairy producters, we expect weak global supply to underpin global dairy prices at or around current high levels for at least the rest of the year."

He expects NZ milk production to fall by 1% compared to last season, a change from its previous prediction of a 1% rise.

"New Zealand production has started the season on the back foot," says Penny.

"Winter and spring so far have been either wet or cold or both in many parts of the country. As a result, production for the first three months of the season is running at 1.8% behind the same stage of last season.

"We expect this production softness to continue in the short term."

Meanwhile, dairy production elsewhere is also soft. Weather has also impacted European production, with production for the first seven months of the year down 0.1% compared to the same time a year ago. In addition, Chinese (domestic) and US production continue to be constrained by very high feed costs and limited feed availability.

Last week's Global Dairy Trade auction recorded a flat result after several rise in prices.

Whole milk powder (WMP) prices, used as a benchmark to set the farmgate milk price, have lifted by around 5% since August.

ASB economist Nat Keall notes that dairy prices remain well above long-run averages.

He says not too much should be read into WMP prices dipping 0.4% last week to US$3,749/metric tonne.

"Given the current strength in prices, anything other than a sharpish decline at each auction continues to imply a solid farmgate price for the season," he says.

ASB is sticking to its forecast milk price of $8.20/kgMS.

Keall notes that the overall GDT price index remains up around 30-40% on the same point in the last three dairy seasons.

He agrees that milk supply could be tight in the coming months.

"Production data is increasingly pointing to tighter supply over the remained of the season," he says.

More like this

Tatua smashes $10 barrier

Waikato milk processor Tatua says keeping products moving to overseas customers during the pandemic was one of the highlights of its last financial year.

Wide forecast range is 'sensible'

Fonterra's decision last week to retain its wide forecast milk price range is sensible, says Westpac senior agri economist Nathan Penny.


Why should we do more?

OPINION: Managing our dairy sector's impacts inevitably attracts a range of views. Should we do more, less or stay the…

Cattle sale with a difference

Innovation, loss and resilience have brought the Singh family to the point where it is poised to honour its patriarch,…

O'Connor's overseas odyssey

Agriculture Minister Damien O'Connor continued his overseas odyssey in the past week with multiple meetings in the US, Europe and…

Machinery & Products

Protective tint

Now available in New Zealand, Wildcat Static Cling Tint adds a protective layer to the windows of your tractor, harvester…

New owner for stoll

German company Stoll, the well-known manufacturer of tractor front loaders and attachments that claims to be the second largest producer…

Fert spreaders get a revamp

Kuhn has updated its MDS range of fertiliser spreaders, giving farmers more options to upgrade machines as situations change, rather…

Mowers spring into action

With spring upon us, thoughts turn towards shutting up paddocks for conservation and maybe the purchase of new machinery to…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Feeling the heat

US dairy farmers have a new threat to their business - heat waves.

Class action

The news has gone from bad to worse for a2 Milk - the company Synlait had hitched its wagon to.

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter