Friday, March 29, 2024

Dairy prices peak for Christmas

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The highest Global Dairy Trade (GDT) price index rise since July and the second-highest for 2020 helped bring a turbulent year to a satisfactory close for New Zealand dairy farmers.
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The GDT index rose 4.3% on December 1, in large part due to a 5% increase in the average price for whole milk powder (WMP) delivery periods and product variations.

The WMP average was US$3182/tonne, just below a short-lived July peak of $3218.

The global dairy market has lifted 11% in three months, since its most-recent low point, against expectations that higher NZ milk production would tilt the demand-supply balance.

Although the NZ dollar against the US dollar has appreciated 5c over the same quarter, the NZX milk price indicator has risen 50c from $6.78/kg milksolids on September 1 to $7.28 now.

Other dairy market analysts have increased their milk price forecasts or indicated that there is reason for them to do so shortly.

NZX analyst Amy Castleton says the dairy derivatives market was bullish on WMP, now writing contracts at $3200-plus for the next six months.

Milk price futures contracts for the current season were trading at $7/kg and $6.80 for the next season.

Westpac senior agricultural economist Nathan Penny says his milk price forecasts were $7 for both this season and the next.

The milk fat price recovery was well under way, butter having increased 20% since the covid-19 lockdowns.

“The recovery in global dairy demand is on increasingly solid ground,” he said. 

“In fact, we argue that further price increases may be likely over 2021 as covid vaccines roll out and in-restaurant demand picks up, for example.”

ASB economist Nat Keall observed that all WMP prices were higher across the contract curve and that further-dated contracts commanded the highest prices.

While some buyers in China had built up stockpiles, demand was continuing to rise.

“Dairy import volumes in China were up across the board in the latest data, with food insecurity a big theme,” Keall said.

“Although NZ faces growing competition from other exporters, we expect solid Chinese demand to help support prices at future auctions.”

Keall says the ASB milk price forecast was currently $6.75, but the season was likely to end at a higher level.

The season-to-date milk production up 1.8% and the NZ dollar appreciation were reasons for caution, but the risks for the current forecast were firmly skewed towards the upside.

In the latest GDT butter prices were up 3.8%, skim milk powder (SMP) prices were up 3.6%, anhydrous milk fat up 2.6%, cheddar up 2.4%, and lactose rose a whopping 13.5%.

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