The New Zealand dairy market looks to be finishing the year on a positive note following a good result in the mid-November Global Dairy Trade (GDT).
Prices lifted 1.8% at the auction with average prices sitting at US$3157/tonne.
RaboResearch senior dairy analyst Emma Higgins called it an excellent result for NZ dairy farmers due to the large whole milk powder (WMP) volumes sold and buoyant global milk production.
WMP prices remain largely dictated by robust Chinese demand, which has helped shift peak WMP GDT volumes for this sales season. The WMP volumes on offer at the GDT are now moving lower in line with production trends.
Westpac were equally upbeat, with senior agricultural economist Nathan Penny saying the lift effectively erased the previous 2% fall in early November.
If that is the case, then the GDT has been in positive territory since September 15.
Penny says in Westpac’s fortnightly Dairy Update that the result was in line with market expectations.
With two auctions left in December, what do economists say about the outlook for the rest of the year?
Penny expects overall global dairy demand will firm over 2021 and 2022, as countries gradually get on top of covid and the global economy rebounds.
This trend has already started in China and East Asia where dairy demand has rebounded from its lows earlier in the year, with overall dairy prices regaining some lost ground, he says.
“Looking by product, the key change we expect at this horizon is that demand and prices for milk fat will begin to normalise. Currently, milk fat prices are soft as consumers eat less cream and other milk fat products in settings such as restaurants.
“In particular, we expect that the rollout globally of covid vaccines will gradually allow more people to return to restaurants and other venues that milk fat consumption relies on,” he says.
Penny also expects modest growth in supply from dairy exporters, which he cites as a reason why prices have held up well during the global covid recession.
“Moreover, we see a low probability that global supply will deviate materially from these trends by enough to offset the impact on prices from rising demand,” he says.
It was not without risk – a firming NZ dollar, the weather, the potential for dairy buyers running down stocks after having built them up during covid to protect against supply disruptions and uncertainty around global agricultural trade policy.
The word resilient features strongly in ANZ and ASB’s description of dairy prices.
ASB’s November Farmshed Economics says the sector has proved much more resilient than many had anticipated and has been another beneficiary of still-sturdy Chinese demand.
“Demand in China still looks to be holding up well, but there are reports that the country has now built up a good stockpile, raising questions around how far that trend can continue,” economist Nat Keall wrote.
ANZ ag economist Susan Kilsby recently told Farmers Weekly that global dairy commodity prices continue to defy expectations, consistently delivering good returns.
“However, we remain cautious about the outlook and the scope for dairy commodity prices to soften,” she says.
To that end, it raised its milk price forecast 20 cents to $6.70/kg MS. Westpac has kept its forecast at $7, the NZX milk price forecast has lifted 12 cents to $7.13/kg MS and ASB is at $6.75.
Rabobank has kept its forecast at $6.35/kg MS, although that is due to be updated this month and barring any unforeseen circumstances over coming weeks, that forecast will be moving upwards.
It all could mean an early Christmas present for farmers if Fonterra follows tradition and updates its forecast in early December.
