The GDT price index rose 3.5%, the eighth rise (and one fall) since August, containing a 4.9% rise for whole milk powder (WMP) prices.
The NZX Dairy Derivatives market, in particular WMP futures prices, also showed dairy market participants expected further price strengthening to come, AgriHQ dairy analyst Susan Kilsby said.
But the $1000/tonne differential between WMP and skim milk powder prices on world markets could not persist and the most likely correction would be a fall in WMP relative to SMP.
WMP futures prices for the near contract added a further $100 after the latest GDT reset the level to US$3560/tonne.
AgriHQ’s post-GDT revision of the farmgate milk price came up with $6.61/kg MS, not including the latest lift in the futures market.
“However, that differential can’t persist and it is unlikely that SMP prices will rise now the European Union has begun selling out of stockpile and the United States has the potential to export more SMP.”
Kilsby said WMP was threatened by substitution, both by SMP plus dairy fat and SMP with non-dairy oils.
ANZ Bank rural economist Con Williams said there were factors that would take the heat out of prices in the New Year.
He cited the sale of European skim milk powders out of stockpile, premium prices for NZ powders and some improvement in milk supply from NZ and European producers.
However, should prices hold, indications were for a $6.40 to $6.50/kg milk price this season.
After calling 2016 the year of a remarkable rebound in dairy prices, Westpac Bank economist Anne Boniface said there was no doubt the fundamentals of supply and demand had moved in favour of dairy farmers.
“But looking ahead it is not all plain sailing.
“The NZ supply tightening to a greater extent than expected has taken the gloss off improved prices for northern farmers.
“We remain wary of the ability of higher prices to induce a supply response both locally and further afield.
“The durability of the recent improvement in prices will in part hinge on the sustainability of the recent pick up in Chinese demand.”
Westpac had a payout forecast of $6.20, which should be well above break-even levels for most farmers.
After leading the payout forecast stakes for some months with its $6/kg prediction, ASB Bank economists said they were in no hurry to make a higher revision.
“But there is clear upside and if prices remain at or near current levels it is simply a matter of time.”
The latest GDT levels and prices for dairy derivatives showed the recovery had legs, ASB’s Nathan Penny said.
More tightening in supply, especially out of Europe, was expected and the very weak production season in NZ was all but set in stone.
