The GDT index rose 1.4%, its eighth consecutive rise over four months, and it is now at a record level for the past seven years, going back to March 2014.
The penultimate Global Dairy Trade (GDT) auction for 2021 cemented in the high, probably record, farm gate milk price, close to $9/kg milksolids.
Seven months into the current dairy season, commodity prices are strong and stable, the exporters have sold forward and have hedged their currency transactions.
ASB analyst Nat Keall says that at this point of the season a record milk price was more or less guaranteed and that every GDT auction in which whole milk powder (WMP) prices simply hold the gains they have already made supports that prospect.
His forecast remains at $8.75, accompanied with an upside risk.
The GDT index rose 1.4%, its eighth consecutive rise over four months, and it is now at a record level for the past seven years, going back to March 2014.
Within the index, WMP prices rose 0.6% and the average value now sits just about US$4000/tonne.
Skim milk powder prices are not far behind, sitting at US$3721, up 25% since July.
Butter and anhydrous milk fat (AMF) rose in price by 4.6% and 3% respectively, and AMF is up 50% over the past 12 months, now US$6668.
Westpac dairy analyst Nathan Penny put together a very positive package after the latest GDT results, including a 10c increase to $9/kg for his current season milk price forecast.
He also increased next season’s forecast by 60c to $7.50 and added that he thought that $7.50 would be the average farm gate price for the coming five years.
“The key catalyst for the forecast revisions is our lower forecast track for the NZ dollar against the US dollar,” Penny said.
“We now expect the NZD to fall to US66c by mid-2022, a whopping 8c lower than our previous expectation of it rising to 74c at the same stage.
“Expectations of an earlier increase in interest rates in the US have put the USD on the front foot and we expect that it will make further gains against currencies like the NZD over the next six months.”
Penny says this effectively means a windfall gain for our dairy farmers this season and the next.
The currency boost will counteract the effects of growing milk supplies next year, which will decrease global commodity prices.
NZX dairy analyst Stuart Davison says his updated milk price model was at $8.82, following the auction outcome and the reaction of the dairy derivatives market.
Although the price increases were small, every commodity rose in value across almost every contract period, a powerful indicator of demand strength.
“Demand remains very global and the market is no longer heavily reliant on North Asian buyers to do all the heavy lifting,” Davison said.
