Prices back on track

 Banks are already lifting their forecasts: ASB is up 30c to $5/kgMS and BNZ up 10c to $4.80/kgMS.

The latest GDT lift is on top of a 9.4% rise at the previous auction, the key product whole milk powder up 13.7% this time, on top of a combined lift in the last two auctions of 35%. 

Fonterra is due to announce its updated forecast under DIRA regulation during a visit to Northland this week.

BNZ senior economist Doug Steel says the bank has lifted its forecast to $4.80/kgMS for 2014-15 on the back of the last two auctions. Big gains have come a bit earlier than anticipated. 

“We were expecting prices to be higher this year but they’re certainly coming in a rush in two auctions,” he told Dairy News. “It’s to do with the dry in New Zealand, but also slowing production growth around the world is a big part of it.”

BNZ’s forecast for the coming season is about $6/kgMS. “It’s early days for that one. It’s due to the vagaries of the commodity and currency markets so we’ll continue to assess that one.”

They are still conscious of the challenges for the milk supply globally through 2015 with the European quota coming off and low grain prices encouraging production in the northern hemisphere, Steel says.

Last week’s GDT prompted ASB to lift its farmgate forecast 30c to $5/kgMS for the 2014-15 season and to lift next season’s forecast by 50c to $6.50/kgMS.

ASB rural economist Nathan Penny says dairy prices are “back on the horse”. But while the results were impressive they came at a cost, including the drought declaration in Canterbury and rapid slowing of milk production.

“Generally, farmers have begun to respond to lower global farmgate milk prices (and in the case of NZ, prompted further by dry conditions) by slowing their production,” Penny says in his weekly update. “Moreover, what the recent auction results highlight is that global dairy markets remain sensitive to changes in NZ milk supply.”

Many forces in play

Several factors will come into play when the milk price forecast is revised this week, says Fonterra chairman John Wilson.

“As we said in December when we announced the $4.70 figure, this required whole milk powder prices to move up to about $3500/tonne by autumn,” he told Federated Farmers Dairy section’s annual conference in Taupo.

“We can see that movement now but there are other factors such as the exchange rate volatility which the board will take into account as part of its review.”

Wilson says they will look at supply and demand for milk products internationally. Factors include the drought in New Zealand and Australia and production dropping in Europe because of lower milk prices.

“[Our new forecast] will be based on all that analysis and taking this through to the end of our financial year.”