Tuesday, 27 July 2021 09:55

Shine off dairy prices

Written by  Sudesh Kissun
Resurging COVID-19 across the globe is continuing to take the shine off previously high dairy prices. Resurging COVID-19 across the globe is continuing to take the shine off previously high dairy prices.

Resurging Covid-19 across the globe is continuing to take the shine off previously high dairy prices.

Whole milk powder prices fell between 1.5% and 3.5% for the fourth consecutive Global Dairy Trade (GDT) auction, last week.

The latest GDT result prompted ASB to lower its 2021-22 forecast milk price by 30c to $7.90/kgMS. ASB economist Nat Keall says it is clear that prices are losing momentum as New Zealand moves deeper into the season, which started on June 1.

He says this may reflect the fact that stockpiles are now much better covered after the frenzy earlier in the year.

"We knew dairy prices wouldn't sustain these heights forever, but prices are falling a bit faster than we'd anticipated," Keall told Rural News.

"The fact that prices have continued to fall even as Fonterra has reduced the amount of product on offer, clearly shows that the demand and supply balance is shifting in the direction of buyers rather than sellers.

"The key question is where prices will find their floor, and on that front we are still positive."

Keall notes that its $7.90 forecast milk price is "still lofty".

Westpac is sticking to its $8/kgMS forecast milk price, but senior agri economist Nathan Penny says it is keeping a close eye on Covid and dairy demand in the coming weeks.

"On the demand side of the equation, the renewed Covid concerns have clouded what was previously a very rosy picture," says Penny.

"That said, it will take some time to digest what this means for dairy markets and prices. As a result, we'll be keeping a close eye on Covid and dairy demand developments over the coming weeks, with a particular focus on key dairy markets in Asia."

Penny says, on balance, the risks to the milk price outlook have clearly shifted to the downside.

"However, for now we stick with our 2021/22 milk price forecast of $8/kgMS."

Keall agrees that the surge in delta variant cases overseas has added a bit of uncertainty to the economic outlook.

But he still expects the uptick in global demand and ongoing supply chain issues will keep commodity prices supported across the board.

Fonterra has issued a wide $1.50 forecast payout range for this season: $7.25 to $8.75/kgMS.

With whole milk powder prices slipping from the highs of US$4,000/metric tonne to just over US$3,700/MT, the co-operative could lower its forecast range soon.

That said, Fonterra will benefit from favourable forward exchange rates and reports of stronger prices off the auction platform.

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