Wednesday, February 21, 2024

Cheese healthier than flatlining dairy

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Dairy analysts’ rethink narrows gap in forecasts.
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Dairy market analysts have moved their farmgate milk price forecasts after a lacklustre first June Global Dairy Trade auction, in which the GDT price index fell by 0.9%.

It was the first GDT auction of the new 2023-24 dairy season for New Zealand and the second consecutive 0.9% fall in the price index of six dairy commodities.

Individually, cheese prices put on a healthy 7.4%, anhydrous milk fat 1.8%, butter 0.5%, skim milk powder was unchanged, butter milk powder down 2.4% and whole milk powder down 3%.

Westpac senior agri economist Nathan Penny carved $1.10 off his forecast, which now stands at $8.90, because of NZ’s restricted capacity to produce more cheese.

ASB economist Nat Keall added 25c to his forecast, which is now $7.25, reflecting the recent weakness in the NZ dollar.

These two analysts had been $3 apart but that gap has narrowed to $1.65 and they now sit at either end of Fonterra’s first official forecast range, $7.25 to $8.75.

In the largely sideways drifting world market for dairy products, Penny jumped on the behaviour of cheese for comment, saying that NZ is not well placed to cater for the increased demand.

Cheese prices in the past 18 months had been a third higher than in the previous five years, he said. Cheese prices have never been as high relative to WMP prices before.

It might be a result of covid lockdowns, home deliveries of pizza and a newfound love for cheese in large fast-growing Asian markets.

NZ dairy processing is skewed towards milk powder and although Fonterra has built several mozzarella plants, it has historically produced low-standard cheese, labelled cheddar.

“Despite sizzling cheese prices we have been unable to materially increase volumes and ideally we should be switching more WMP production into cheese.”

That would continue to be reflected in Fonterra’s profits from non-reference products but not in the farmgate milk prices, Penny predicted.

In the ASB Commodities Weekly newsletter, Keall was downbeat about Chinese purchasing of WMP.

“Dairy prices have largely drifted over recent auctions, struggling to maintain clear direction.

“Six months from the end of covid restrictions, China’s return to the global dairy market has been modest and uneven.

“Local WMP production remains strong while domestic consumption is relatively subdued.

“The prevailing global dairy market dynamics don’t look hugely supportive for prices in our view,” ASB said.

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