Friday, March 29, 2024

China demand lifts milk price forecast

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Strong demand from China for whole milk powder (WMP) has enabled Fonterra to lift the farm gate milk price forecast range and midpoint by 40c/kg milksolids.
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The new range is $6.30 to $7.30 and the midpoint now $6.80, upon which the advance schedule for future payments is based.

The new level will not apply to farmers’ October payments for September milk.

Chief executive officer Miles Hurrell said demand from China had recovered quickly from the impact of covid-19 and Global Dairy Trade (GDT) prices had responded.

The increase in the milk price forecast, when paid to dairy farmers, would inject an additional $600 million in the rural economy.

Should $6.80 be the final milk payment for the 2021 season, it would be the fifth consecutive $6-plus seasonal result since the slump in dairy prices in 2014-16.

During the past four years world, WMP prices have stayed in a band between US$2600 and $3300/tonne, Fonterra’s head of commodity trading Dave McGowan told a NZX Virtual Global Dairy Seminar on the same day as the new forecast.

He says WMP supply and demand factors were not expected to result in any dramatic price movements.

In more general terms for dairy products, supply and demand were in the most balanced position of the past decade.

Excluding butter, which had been knocked by the drop in foodservice demand, dairy products had recovered well from the initial impact of covid-19.

However, there were large potential impacts on the marketplace horizon, like major economic shocks from covid lockdowns, high United States butter stocks, the US election, geopolitical tensions between the US and China and the recent weakening of the US dollar.

“If the US dollar falls further it is likely to lead to more volatility in currencies and commodities,” McGowan said.

Hurrell says the wide range in the forecast milk price indicated a high number of demand and supply factors.

“It is still relatively early in the season and a lot can change,” he said. 

“For example, we could experience volatility with exchange rates and milk supply from Europe and the US is increasing.

“Another uncertainty is how a potential risk from further waves of covid-19 and a global economic slowdown could impact demand. 

“While increasing demand and supply would retain balance, given there are still a number of risks, we are still recommending our farmers be cautious with their decision making.”

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