Another 4% fall in the Global Dairy Trade price index does not threaten farm gate milk price forecasts of $9.50 to $10/kg milksolids, according to market analysts.
In the latest GDT auction the price index incorporating all products fell by 4.1%, including whole milk powder down 3.3%.
Skim milk powder was down 5.2%, butter down 9.1% and anhydrous milk fat by 3.1%. Only cheddar had a rise of 1.4%.
It was the seventh GDT market fall in the past four months, meaning dairy commodity prices have fallen 19% since the beginning of March, during the Northern Hemisphere peak milk production period.
ASB analyst Nat Keall is sticking to his $10 milk price forecast for the new season because that view is based on demand and supply fundamentals, to which nothing has yet changed.
“We want to see how things settle out after the Southern Hemisphere winter before adjusting our inputs,” he said.
“Don’t forget prices are very high in an historical context so even if there is a little downside risk to our forecast, 2023 is likely to be one of the strongest seasons on record.
“We are still sceptical prices can fall very far in an environment where global milk supply is extremely tight.”
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European dairy production is still weak and the latest data shows a decline.
Southern Hemisphere producers should face the same constraints of high input costs and hard-to-obtain labour as they go into spring.
“We are hopeful more favourable weather and our less input-intensive local farming model will help NZ hold up better than most.
“While global growth is slowing too and consumption won’t be as flash as hoped, global dairy demand should be inelastic enough to keep prices well supported,” Keall confidently said.
Analysts have also highlighted the benefit of the fall in the value of the NZ dollar, down US4c since the first 2023 season forecast by Fonterra in late May.
Fonterra’s treasury team will have used that fall in the USD/NZD exchange rate to take hedging positions against most of this season’s anticipated sales, in advance of the milk flow.
That also secures the milk price forecasts, and the eventual payout.
As the latest GDT results came to light, NZ’s third-largest milk company Synlait announced a rise in milk price forecast of 50c to $9.50.
It brings its forecast up to the mid-point of Fonterra’s range prediction, $8.75 to $10.25, which was also increased by 50c on June 23.
“The forecasted lift in milk price reflects an improved outlook for 2022-23 dairy commodity prices, following the recent recovery in pricing, and the current strength of the US dollar,” Synlait chief executive Grant Watson said.
