Continued weakness in Global Dairy Trade prices has led dairy market analysts to forecast the current season milk price to finish around the mid-point of Fonterra’s range, $8.50/kg milksolids.
“With the season nearly at an end, and not much product left to sell, the underperformance in GDT prices over the last couple of dairy auctions nudges prices slightly lower at the margin,” ASB economist Nat Keall said.
“At this late stage, we’ve adopted the midpoint of Fonterra’s forecast range as our forecast for the 2023 season, circa $8.50, down from our own $8.65.
“Beyond that, we remain comparatively conservative on the outlook for dairy prices over the next 12 months.”
The ASB 2024 season prediction for milk prices is around $7.
Westpac senior agri economist Nathan Penny has a similar scenario in the current season, saying there is now downside risk to his 2023 milk price of $8.75.
However, he has maintained a very bullish $10 prediction for next season.
The first March GDT auction resulted in a 0.7% fall in the GDT price index, including a massive 10% fall for cheddar prices, falls of 1.8% for anhydrous milk fat and 1.1% for skim milk powder and a slightly optimistic plus 0.2% for whole milk powder (WMP).
Penny pointed out that overall GDT prices had been treading water in 2023, the price index being down 2% but WMP prices up 0.7%.
“As we have mentioned previously, we expect global dairy prices to rise over coming months as the Chinese economic recovery gains further momentum.
“However, for now, dairy buyers appear in no rush to bid prices higher.”
The reason may be an overhang of dairy products in Chinese storage, but analysts had expected clearer signs of a lift at this stage of the season.
“We are nearing the end of the season and therefore the window for prices to lift is closing.”
Hence the downside risk to Penny’s milk price prediction of $8.75.
For ASB’s commentary, Keall said the strength of the US dollar and the weakness in the NZ dollar is adding to the optimism for dairy prices.
Fonterra would be as much as 40% through its hedging requirements for the 2024 season by now, and the US61c crossrate with the NZD would favourably feed into next season’s milk price, he said.
“While not much has changed when it comes to our view on dairy prices, we’ll be closely watching NZD direction over the coming weeks, with a view towards revising our milk price forecast higher if its underperformance continues.”