Monday, February 26, 2024

ASB lifts milk forecast after GDT gains

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Gains registered despite China’s relative absence from recent GDT auctions.
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ASB has revised its Fonterra farmgate milk price forecast, lifting it by 50c to $7.85/kg MS in the wake of the latest rises in the GDT auction.

The overall GDT index lifted 2.2% in the latest auction and 1.3% a fortnight ago.

ASB economist Nathaniel Keall said in the bank’s online publication Commodities Weekly that dairy prices are at their highest levels in nearly 12 months, heading towards the end of the season. 

“Prices for all WMP contracts are now US$100- 250MT above their long-run average, having spent most of the season at, or below, that benchmark. 

“We’ve been surprised by the resilience in dairy auction prices. Dairy prices have outperformed where we’d expected them to be based on (reasonably decent) global dairy product and the (comparatively soft) global economic backdrop, particularly among major dairy importers like China.” 

Keall said they had expected a more sustained level of demand from China to push dairy prices higher after its relative absence at this season’s GDTs.

“But dairy prices have continued to press higher despite China only buying low volumes of product on offer (including its lowest proportion of WMP in around six months at this week’s auction).”

Dairy prices will need to undergo a meaningful correction in the next few auctions to produce a price at or below the midpoint of Fonterra’s forecast range around $7.50/ kg MS, he said.

Westpac chief economist Kelly Eckhold said overall prices now sit at their highest since June 2023, having lifted by around 25% since this year’s low in August. 

“Overall prices are now up 3% on a year ago, 4% below their five-year average levels and 5% above the 10-year average. We continue to think that expectations of reduced production data in NZ and offshore may still be supporting prices,” Eckhold said in the bank’s Agri Update.

The bank retained its $7.50/kg MS forecast, in line with the midpoint of Fonterra’s guidance.

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