Adverse spring weather has slowed milk intakes in both New Zealand and Victoria, Australia’s major dairy producing region.
Australia’s dairy producers lack confidence as milk prices continue to retreat.
This lack of confidence has seen some farmers exit the industry while the cold, wet spring has reined in milk supply from the remaining suppliers.
Fonterra recently announced its production of whole milk powder, cheddar and butter has been impeded by milk intakes being lower than expected.
The announcement was mildly supportive of the markets. Prices rallied on both the NZX Dairy Derivatives market and GlobalDairyTrade following it.
However, the response in both markets hasn’t been overwhelming.
Buyers are now taking a lot of notice of NZ’s weather patterns as they try to figure out the impact it might have on dairy prices in coming months.
The outlook for dairy prices is positive but so far the fall in supply has been matched by subdued demand meaning there has not been a massive upsurge in prices.
Milk price futures have generally moved in line with movement in dairy commodity prices.
The milk price futures contract for this season was priced at $5.40/kg MS ahead of the latest GDT auction and that price held in subsequent days.
That price is above Fonterra’s milk price forecast of $5.25/kg MS but below the AgriHQ milk price forecast of $5.60/kg MS.
The milk price is highly sensitive to the exchange rate.
AgriHQ has assumed a US$0.71 rate but if that lifts to US$0.73 then 20c/kg MS is wiped off the forecast milk price.
The AgriHQ milk price forecast factors in the whole milk powder price lifting to US$3000/t by April 2017 – that’s about an 8% lift from where prices are now.
• Susan Kilsby is a senior AgirHQ analyst
