Global dairy prices are dragging their feet and forecasts of the New Zealand milk price have been revised downwards as the season draws to a close.
Westpac senior agri economist Nathan Penny said the expected pick-up in Chinese demand is taking longer than anticipated and he has trimmed his milk price forecast by 35c to $8.40/kg.
“With the end of the season drawing near, we have effectively run out of time for our previous forecast to hold,” he said.
Previously, ASB had lowered its forecast by 15c to $8.50, the midpoint of Fonterra’s own forecast range of $8.20 to $8.80.
ANZ reduced its forecast by 25c to $8.50.
However, while these forecasts have been reduced, the $8.50 consensus, if it is confirmed, will be the second-best farmgate milk price outcome.
The latest Global Dairy Trade (GDT) results were not encouraging for milk powder of milkfat products, and cheddar prices suffered their second consecutive 10% fall.
Cheddar has now lost 40% in value during the past year and that may signal a sharp ending to Fonterra’s non-reference protein products windfall of the current financial year.
But the main performer for Fonterra, casein, is not traded on the GDT platform.
For the second March auction, the GDT price index fell 2.6%, including anhydrous milk fat and butter down 3.8% and 3% respectively, skim milk powder down 3.5% and whole milk powder down 1.5%.
Jarden’s head of derivatives, Mike McIntyre, said the medium-term milk price outlook is around $8.50 and milk price futures contracts for next season and the following season are trading at that level.
The GDT index has fallen 38% over the past 12 months, which analysts say is due to China’s reduced presence in the auctions because of covid lockdowns.
China’s share of NZ dairy exports dropped from 43% in late 2021 to around 30% currently.
“But we maintain that it is a matter of when, not if, lifting Chinese demand translates into higher dairy prices,” Penny said.