AgriHQ dairy analyst Susan Kilsby said the revised payout forecast using the latest GDT prices was $6.40/kg milksolids, compared with Fonterra’s forecast of $6 for the 2017 season.
The most relevant whole milk powder (WMP) price at the GDT auction was US$3255/tonne and the NZX Dairy Derivatives market produced a futures price of US$3400 for May delivery the day after the auction.
The comparison showed the futures market expected a slight rise in world prices before the end of the NZ dairy season, Kilsby said.
“Tight milk supply from the southern hemisphere is expected to support WMP prices through to the end of the season.
“Prices are expected to trade in a band near current levels as tight supply will prevent prices falling too far.
“During the second half of 2016 WMP traded at a premium to other product streams but prices rebalanced quickly when more milk was directed into WMP production.
“Demand for WMP is steady but not excessive, which means the upside potential for prices for the remainder of this season is also capped,” Kilsby predicted.
ASB rural economist Nathan Penny suggested Fonterra’s move to increase WMP tonnages put into the GDT auction sales channel had backfired.
“In our view, the move to take advantage of higher WMP prices has come at a cost.
“The extra WMP offered has depressed the price significantly compared to what we anticipated it would be and despite a higher weighting for higher-priced WMP, the overall result is likely to be a lower overall milk price.”
Nonetheless, Penny stuck with his $6.50 payout forecast, with some added downside risk.
Westpac had a milk price forecast of $6.20 because it expected some weakness in WMP prices to occur before the end of the season.
“To us, markets look to have run a bit ahead of fundamentals through the latter part of last year, so some retracement hasn’t come as a surprise,” it said.
“We think prices will ease a bit further in coming months as global supply begins to stabilise.”
