Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
In an email to farmer suppliers, Hurrell described the overnight Global Dairy Trade (GDT) auction results as “pretty extraordinary”.
The GDT price index jumped 15% compared to the previous auction, its eight consecutive price rise.
Whole milk powder prices, used by Fonterra to set its milk payout, rose a whopping 21% to US$4364/MT, a seven-year high.
Hurrell says farmers would be keen to know what the latest result means for Fonterra’s farmgate milk price.
The co-op is forecasting a milk price range of $6.90-$7.50/kgMS and earnings range of 25 to 35c/share.
“We are now assessing the situation, running the numbers on our forecast farmgate milk price and talking to our sales teams on the ground in our markets to understand further what they are seeing, regarding future demand,” he says.
“While GDT results are one key input to the farmgate milk price, there are many other factors we need to consider – including, how far we are through the season, our sales book, foreign exchange and any ongoing impacts from COVID-19.”
Hurrell says an increase in dairy prices was expected, as reflected by the NZX Whole Milk Powder futures contract yesterday being at $3,790/MT or a 5.7% increase on the 17 February GDT event.
“However, a lift of 21% was not anticipated,” he says.
“We’ve continued to see strong demand for dairy from China and South East Asia, and participation was high last night.
“The relative reliability of our supply chain versus that of others means buyers trust we will be able to get our product to them and that’s also helping drive further demand for our products.”
