Dairy is enjoying a rare unbroken golden run at the moment.
Over the past month, the Global Dairy Trade (GDT) had its seventh consecutive lift, and Fonterra lifted its milk price guidance from $6.70-$7.30 to $6.90-$7.50/kg MS.
The latest GDT auction saw a 3% lift in prices, a seven-year high.
NZX analyst Amy Castleton says the result blew away all expectations with strong demand for all products.
According to Westpac, since November 17, overall prices have lifted nearly 23% and are around 20% higher than the same period last year.
It put the good result down to the strength of the Chinese and wider Asian economy
“With covid-19 under control, China was the only major global economy to grow over 2020,” the bank says in its latest Dairy Update.
This point was made by Fonterra when it announced the 20c forecast range lift in early February.
Chief executive Miles Hurrell says there was strong demand for whole milk powder (WMP) and skim milk powder (SMP) from these regions, which were the key drivers of milk price.
Chief financial officer Marc Rivers says that demand from Asia had continued throughout the season and it was extremely encouraging.
For China that demand in part was due to its ability to effectively manage the covid-19 pandemic, he says.
The forecast lift also falls in line with those of the banks, including Westpac’s $7.50/kg MS, ASB’s $7.40/kg MS and $7.20/kg MS for ANZ.
How long will it last?
Demand for food globally is currently outstripping supply, with Westpac predicting it to settle later this year. It currently has its 2021-22 forecast at $7.25/kg MS.
Similarly, ASB has its new season forecast at $7.30/kg MS.
“With demand proving resilient, we expect dairy prices to remain elevated, though the strength of the NZD will weigh a little on the season,” it says in its Commodities Weekly report.
Other commodities are also up, including oil and metals. Iron ore prices jumped 40% in December and shipping costs have also lifted. Fertiliser prices have also increased, with both Ravensdown and Ballance announcing price lifts, as has the minimum wage. So, while internationally prices might be going gangbusters, the costs of producing that milk are only going to go one way.
The recent rain will have come as a welcomed relief to many after it was getting worryingly dry in many areas. It will also put North Island farmers on alert for facial eczema, with the rain likely to see a spike in spore counts.
Early harvest will also be underway on some North Island maize fields in what has generally been a great growing season. One Waikato farmer says it has been the best crop he has seen in 40 years.
This, along with many farmers switching to once-a-day (OAD) milking by now, could see lactation all the way through to late-April to capitalise on that higher milk price.
The extra income could be used to pay off debt and help the industry meet environmental targets around freshwater and climate change.
The long-awaited draft report from the Climate Change Commission (CCC) was also released. Its proposed pathway to reduce emissions stated that all farmers – dairy and drystock – should adopt best farming practices that support low emissions agriculture.
This will mean adjustments to stocking rates, feed and nitrogen inputs. This will require sector buy-in to make the changes because the clock is ticking.
If agriculture cannot come up with a way to measure and account for its emissions by 2025, the Government will fold it into the Emissions Trade Scheme (ETS).
