Tuesday, 11 September 2018 12:55

Payout under threat

Written by  Pam Tipa
Doug Steel. Doug Steel.

With dairy prices down nearly 13% below levels of a year ago, this adds to the downside risk to Fonterra’s newly minted $6.75/kgMS milk price forecast, says BNZ senior economist Doug Steel.

In fact downside risk is building for its own $6.60/kgMS forecast, he says.

“Prices may need to improve a little to achieve a milk price in the mid-6s, depending on how the NZD performs. 

“To us, Fonterra’s forecast implies a) higher prices over the remainder of the season or b) the co-op is achieving a lower effective FX rate than we are assuming or c) the co-op is achieving better prices for some sales than those received via GDT. 

“There is still a long way to go in the season, but downside risks loom. Another round of US tariffs on Chinese goods would not help sentiment nor would any further easing in Chinese and global growth indicators. 

“On the positive side, expanding global milk production seems to be slowing amid pressure on feed supplies. And a falling NZD is offering material support to NZ denominated prices.”

The overall price index was down 0.7% at last week’s Global Dairy Trade auction -- a bit disappointing when the market had been looking for something like a 2% gain, says Steel. 

Whole milk powder (WMP) underperformed, slipping 2.2% to an average US$2821/tonne. This is a bit further below the RBNZ’s US$3000/t medium term view.  

Skim milk powder rose by 2.2%, pushing average selling prices back above US$2000/t, although the increase was not as much as expected. 

“Still it is good to see this product make some price headway as the EU reduces its massive stockpile,” says Steel.  “Cheese prices lifted 4.2%, while fats generally undershot expectations. Butter prices fell 2.8%.”

Offered WMP volumes were up 29% from the previous event as NZ milk production lifts with grass growth into spring. Overall volume sold rose 21.1% from the previous event to be up 15.9% on a year ago. 

ASB’s senior rural economist Nathan Penny says the modest overall decline last week fits with the price weakness we normally see at this time of the year.  

“Looking beyond seasonal factors, global dairy markets appear largely balanced.  NZ production is set to lift this season, albeit moderately: we expect a 2% lift this season compared to last.  

“However, dry weather offshore means exports from other producers are likely to be more scarce than usual over coming months.  Meanwhile, global demand is mixed, but overall remains relatively positive.”      

ASB is sticking with its 2018-19 milk price forecast of $6.50/kgMS but continues to note downside risks.

More like this

Liquid or powder?

Fonterra, the biggest exporter of milk powder to Sri Lanka, may have a new battle on its hands.

Prices rebound!

Dairy prices have ended a six month poor run, giving stronger hope to an $8 farmgate milk price this season.

Tariffs backfire

OPINION: New Zealand, and in particular Fonterra, has come under scrutiny in Sri Lanka for taking home the lion's share of the country's spend on imported powdered milk.

National

Machinery & Products

Effluent injection goes XL

Dutch effluent specialist Vredo is testing 15 and 18-metre wide slurry injection rigs for the upcoming 2022 spreading season.

Choosing the right pump

Choosing the right pump for an effluent system is the key to ensuring a system works well and gives many…

Spreading muck with ease

Palmerston North headquartered Strautmann Hopkins Ltd imports the extensive range of Strautmann Muck Spreaders for farmers and contractors, built by…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Liquid or powder?

Fonterra, the biggest exporter of milk powder to Sri Lanka, may have a new battle on its hands.

Failed legal action

UK vegan and animal rights groups have failed in a bid to ban an advertising campaign promoting meat and dairy…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter