ASB Bank lifted its forecast farmgate milk price for the current season to $10 per kilogram of milk solids after strong demand from North Asia underpinned dairy prices at today’s Global Dairy Trade auction.
While the GDT index slipped 1.3%, led by milk fat products such as cheddar and anhydrous milk fats, ASB economist Nathaniel Keall said: “a modest dip isn’t a big deal”.
A $10 milk price will be the first double-digit payout on record.
Dairy co-operative Fonterra is currently forecasting it will pay its farmer shareholders a range of $8.25 - $9.75 per kgMS, with a midpoint of $9 per kgMS.
The average price for whole milk powder, the key commodity produced from NZ farmers’ milk, slipped 0.6% to US$4,125 (NZ$6,525) a tonne in the overnight auction.
“WMP prices only need to sit around their current levels to deliver a record farmgate milk price, so every auction where they hold their ground is effectively a win,” said Keall.
He also noted the weak NZ dollar – recently trading at 63.01 US cents – will be a “massive boost” for the milk price due to Fonterra’s hedging programme.
According to NZX dairy analyst Alex Winning, “the overall dominant North Asian purchase volumes help to fuel expectations that market demand should remain steady for the time being and somewhat extinguish rumours surrounding North Asian demand currently”.
Lockdowns in Shanghai and Beijing raised fears that Chinese demand for NZ dairy products may abate, especially with snarled-up shipping lanes limiting the ability of exporters such as Fonterra to supply the world’s most populous nation.
Westpac agri economist Nathan Penny said loosening covid restrictions in China will boost demand for dairy products, keeping prices elevated in an environment where supply is limited.
“From here, we expect prices to remain strong on the fact that global dairy supply remains very tight. Easing Covid restrictions in China could give prices a further boost at some stage,” he said.
However, Penny retained his forecast at $9.25/kgMS.