No sign of a price rebound

He notes that dairy prices have extended their decline over the past month or so.

Steel made the comment as the bank shaved 30c off its forecast milk price for this season to $8.60/kgMS.

The Global Dairy Trade (GDT) Price Index is around 6.6% lower now compared to early December. Factoring in a firmer NZ dollar, prices are down 7.8% when expressed in local currency terms. The latest mid-January GDT auction saw overall prices easing by a slim 0.1%.

Steel says there is a hint of price stabilisation, but little sign of any rebound.

“And the result was arguably a bit worse than it looked given there was no obvious boost to these US dollar denominated prices from a circa 2.5% decline in the broad US dollar since the previous auction,” he says.

Steel says BNZ has been relatively cautious on dairy prices for the past year.

“But the further weakening in prices since early December sees us nudge down our 2022/23 milk price forecast to $8.60.

“This is from the $8.90 that we had stuck to since first putting it on the board back in February last year despite significant volatility in the marketplace: market expectations had pushed up toward $10.70 at one point over that period.

“This is not a particularly big adjustment in the scheme of things, but it is nonetheless a downward shift. We will have no hesitation in revising back up if international prices dictate, but we feel that forecast error risks are currently better balanced around a somewhat lower point forecast.’

BNZ says there’s more chance that the 2022/23 milk price finishes in the bottom half of Fonterra’s current $8.50 to $9.50 range than in the top half.

“But there is much changing overseas that could quickly change this assessment,” says Steel.

“There is still a fair amount of the season to run yet.

“A $8.60 milk price would still be high compared to history.

“But not quite as strong as it looks once higher costs are considered, although strong retro payments from the previous season will be supportive for many.

And, at least for shared up Fonterra farmers, the co-op recently lifted earnings guidance and suggested it may do so again if positive earnings conditions extend. That would help offset some of the forecast decline from last season’s $9.30 milk price.”