When will global milk production hit a tipping point?
With global milk prices falling, the question is when will key exporting countries reach a tipping point where production starts to dip.
It’s probably too early to tell. Last week’s GDT saw most products post price rises. Overall prices rose 2.8% and the key whole milk powder (WMP) prices rose 3.4% to sit around US$3246/metric tonne.
China, the world’s biggest dairy importer and Fonterra’s largest market for whole milk powder, has largely been absent as their domestic economic outlook remains weak following Covid lockdowns.
ASB economist Nat Keall told Rural News that China was a little bit more active in the WMP market this auction compared with the last one, where prices declined quite sharply, taking about half the product on offer.
“We’ll need to wait and see whether that is sustained over the coming auctions though,” says Keall.
Westpac chief economist Kelly Eckhold also noted the return of Chinese buyers, and buyers from the Middle East and Europe.
“Chinese buyers returned to buy as did Middle Eastern buyers. Interestingly, European buyers picked up the greatest proportion of product since 2021, continuing a trend of greater support at the auctions – perhaps reflecting declining production at home. Overall prices remain around longterm averages, but of course on-farm costs have increased significantly over this time,” Eckhold says.
With less than two months left in the season, Fonterra is forecasting a milk price range of $7.50-8.10/kgMS, with a mid-point of $7.80/kgMS. ASB is forecasting a $8/kgMS milk price while Westpac $7.90/kgMS.
Keall points out that Fonterra is largely hedged at this point.
“The vast bulk of product has been priced, so there’s not much that can impact this season’s milk price from here. We can be confident of a number close to the midpoint of Fonterra’s range.”
He expects WMP to continue trending in a relatively narrow range.
“It’s generally found support near US$3000/metric tonne and resistance around US$3500/MT or so lately.
“We tend to think it won’t be until the latter half of the year before we see a really sustained move higher from that range.”
Many farmers will now be looking forward to the opening forecast milk price for the new season, starting June 1. ASB is forecasting an opening milk price of $8.35/kgMS and still reasonably happy with that.
“While recent auctions have seen prices pare back a bit, exchange rate movement has been favourable for Fonterra’s hedging,” says Keall.
