Optimism for the new season

Although now sitting on $6.70/kgMS for the 2019-20 season, he is among several economists predicting over $7/kgMS if current prices and currency levels are maintained.

The flat result last week was close to expectations, but it was the 11th consecutive increase for a cumulative gain of 28.3% since November’s low, Steel told Dairy News. 

Prices continue to hover around the top of their range since 2014.  

“Combined with a weaker NZD, this will maintain market optimism for next season’s milk price,” he says.

“The number of unsatisfied bidders was high. This probably reflects low volumes (lowest at an auction in six years) more than it does strong demand. Volumes are typically low at this time of year but are especially so at present with a weak finish to the NZ season. At this point, buyers seem reluctant to bid prices materially higher.” 

 Steel says milk fat prices were stronger than expected, with butter steady despite a large increase in volume compared to previous forecasts. AMF prices rose 1.4%. This speaks to strong milk fat demand. Milk powder prices were mixed with skim milk up 2.8%, while whole milk (WMP) eased 0.5%.

“WMP powder prices sit at US$3249/t. This remains well above the RBNZ’s medium term view of $3000/t.”

 Steel says none of this materially alters milk price calculations. 

“So we are left with our prior view of $6.50/kgMS for the 2018-19 season (top half of Fonterra’s $6.30 to $6.60 range),” he says. 

“For 2019-20 we forecast a milk price of $6.70/kgMS, but the longer prices hold up the more chance there is that this view gets revised higher. 

“Equally, there remains enough uncertainty globally to be a little conservative on the price outlook. Our milk price forecast includes a view that international product prices will drift lower (and the NZ dollar remains reasonably steady). 

“If prices don’t fall from current levels then the 2019-20 milk price is likely to be higher than we currently forecast. If current prices and currency levels were to persist over the coming season it would equate to a milk price in the mid-$7 area.” 

Fonterra is due to provide its first forecast for the 2019-20 season just before the end of May. 

WMP continues to disappoint

While the GDT price index continues to track upwards, whole milk powder (WMP) continues to disappoint, says ANZ agricultural economist Susan Kilsby.

The WMP Price Index softened 0.5%, its third consecutive fall, she says. 

“However volumes traded at this time of the season are low. Prices remain well supported for the last of the current season’s production but prices in the later delivery periods have eased.

“It is not unusual for weaker pricing to occur when NZ starts to sell its new season production. A lift in export volumes in recent months means most buyers aren’t desperate for product right now hence we aren’t seeing upward pressure on prices. 

“Milk production in the US and much of Europe is weaker than normal which will support prices looking forward.”

WMP prices are very similar to where they were at this time last year, and in May 2017. 

“Opening milk prices in the past two seasons were $7/kgMS (for the 2018-19 season) and $6.50/kgMS for the 2017-18 season.  The weaker NZ dollar should allow Fonterra to deliver an opening milk price above $7 for the new season, although it is most likely we will see them deliver a price range rather than a single figure.”

Kilsby says in Australia competition for milk is hotting up due to falling supply. 

“The first opening milk prices for Australia have been released earlier than normal as dairy companies look to lock in supply. Burra Foods has opened at AU$6.40 – 6.70/kgMS which is the highest opening price they have ever announced.”