Monday, February 26, 2024

All eyes on Fonterra as GDT surges

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Since last major market downturn in mid-August, GDT index has risen 30%.
Butter prices dropped 10% in the latest Global Dairy Trade auction.
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Global dairy prices rose substantially this week, up 4.2% overall. This was the fifth consecutive rise and the ninth market rise in the past six months, in which there were 12 auctions.

Butter jumped 10.3%, cheddar 6.3%, skim milk powder 4.6% and whole milk powder 3.4%.

Since that last major market downturn in mid-August, the GDT index has risen 30%, butter prices are up 43% and WMP up 36%.

Dairy farmers will now expect a response from Fonterra in the farmgate milk price forecast, which sits at $7.50/kg milksolids mid-point after hitting a seasonal low point of $6.75 in September.

There is scope for Fonterra to increase to $8/kg, where it started the 2024 season’s predictions back in late May.

Westpac Bank has upgraded its milk price forecast to $7.90, at the upper end of Fonterra’s range of $7 to $8.

“Based on current trends it looks like next year should be a touch better than this year.”

Kelly Eckhold
Westpac Bank

Chief economist Kelly Eckhold said the results were a little surprising and ran counter to their prediction of price consolidation at this time.

“Overall prices continue to sit at their highest since June 2023 and have lifted by around 29% since last year’s low in August.

“On a longer horizon though, prices are only a touch above long-term averages.

“This demonstrates that these are hardly bumper years for dairy farmers even though the worst fears of 2023 haven’t been realised.”

Eckhold said Westpac economists would be releasing their opening outlook for the 2024-25 dairy season in a couple of weeks.

“Based on current trends it looks like next year should be a touch better than this year – albeit not especially stellar.

“We see improving global demand helping lift prices and a further improvement in costs balanced with a firmer NZ dollar over the year ahead.”

NZX dairy analyst Rosalind Crickett said the results of the auction comfortably surpassed most expectations going into it.

The NZX-SGX dairy derivatives market were predicting flat to bearish results all round.

“This was attributed to perceived weakening demand from Asia and better than predicted southern hemisphere production with the effects of El Niño leaving the industry relatively unscathed.”

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