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ASB economist Nathan Penny.
Improved milk production in New Zealand has caused dairy prices to fall heavily overnight, says ASB economist Nathan Penny.
But he says the 6.3% drop in the Global Dairy Trade (GDT) price index was not a surprise. Whole milk powder prices dropped 12.4% to US$2,782/tonne and skim milk powder fell 15.5% to US$2118/t.
Penny says given the improvement in local milk production, it was hinted that prices would correct before the end of the season.
“We have bumped up our forecast for NZ milk production; from a drop of 5% to a drop of only 2% compared to the last season,” he told Rural News online.
“There’s quite a bit more milk around; even Fonterra has revised up its milk production for the season.”
ASB says it will now revise its forecast payout for the season; it currently sits at $6.50/kgMS. An announcement is expected later this morning.
Fonterra has maintained its milk payout at $6/kgMS. Penny believes Fonterra will maintain its forecast payout.
“When Fonterra revised its payout to $6/kgMS, it had a bit left in the tank and we were surprised back then that it did not go higher. So despite prices slipping Fonterra will keep to the $6 payout, we think.”
But with less than three months to go before the end of the 2016-17 season and most products from the season sold, the latest auction prices are not expected to have a big impact on milk payouts. Analysts are now looking to the next season.
Penny says global milk production remains weak; NZ down 2%, Australia even more than that and European production easing as well.
He expects milk prices to start strongly next season. ASB has an opening forecast of $6.75/kgMS.
Fonterra will announce its interim results on March 22.
Key results
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A significant rise in Global Dairy Trade (GDT) auction last week has prompted one bank to lift its forecast milk price for the season to above Fonterra's mid-point.
Whole milk powder prices on Global Dairy Trade (GDT) remains above long run averages and a $10/kgMS milk price for the season remains on the card, says ASB senior economist Chris Tennent-Brown.
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The New Zealand Dairy Industry Awards has added ASB Bank to its national sponsor family.
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