Tuesday, February 27, 2024

Milk price firmly fixed

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The latest Global Dairy Trade (GDT) results indicate pricing momentum well into the latter half of the season, with a flat forward curve of contract prices.
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Westpac senior agri economist Nathan Penny says the solid GDT results have reinforced the Westpac milk price forecast of $8.50.

The latest Global Dairy Trade (GDT) results indicate pricing momentum well into the latter half of the season, with a flat forward curve of contract prices.

ASB economist Nat Keall says this has prompted the bank to add 55c to its farm gate milk price forecast, now up to a record $8.75/kg milksolids.

All dairy analysts are now predicting milk prices in the $8 range, with ASB having become the highest.

Keall says it looked increasingly likely that New Zealand milk production would undershoot the expectations held earlier in the season.

High milk prices are not going to produce greater volume and ASB now predicts 0.5 to 1% fall for the season.

“GDT events over the first half of spring have shown no sign of demand softening and, with supply continuing to look tight, we’re comfortable making a sizable upward revision,” ASB said.

Fonterra should be 80% hedged for currency transactions at an exchange rate around US69c, which is a healthy position in a high commodity price environment.

The second GDT auction in October produced an increase of 2.2% in the overall price index, across all product types and contract periods.

Whole milk powder (WMP) was up 1.5% and now sits at 25% higher than this time last year.

Lactose was up 5.9%, butter 4.7%, cheddar 2.9% and anhydrous milk fat and skim milk powder 2.5%.

The index has recovered its position in the middle of June, at the start of the dairy season, having gone down and then up 7% over the four months.

Westpac senior agri economist Nathan Penny says NZ milk production was down 4% in August, year-on-year, and that anecdotally September and October have produced a similar result.

The solid GDT results have reinforced the Westpac milk price forecast of $8.50.

The NZX Dairy Derivatives market has also lifted, WMP futures at US$3900/tonne and milk price futures for the 2022 season at $8.62, a gain of 12c in a week, and for the 2023 season $8.20.

The NZX milk price forecast has moved to $8.44, a gain of 15c, with a range of $8.32 to $8.75.

The lower end of the range assumes a 1.5c increase in the NZD/USD exchange rate over the remainder of the season and the upper end assumes 5% gain in product prices.

Analyst Stu Davison says it’s silly season for milk price forecasts; enough product has been sold to support some optimism, but there is also enough season left for things to turn quickly.

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