Some economists said there was room now for a 30c/kg milksolids (MS) increase in the forecast but others said the chances appeared to be small.
Fonterra said in December world milk powder prices needed to recover to US$3500/tonne before the end of the season to deliver its $4.70 forecast.
The GDT average price on February 17 was $3272, having risen $1000 or 47% from the $2229 low point reached in December.
Fonterra chairman John Wilson said recently the company was committed to giving its most accurate and up-to-date milk price prediction to farmers every time but he did not know how the next review would turn out.
At the Federated Farmers Dairy section conference in Wairakei he seemed sceptical that the economists’ predictions would be accurate.
Under the Dairy Industry Restructuring Act Fonterra was required to review and make an announcement every three months, with one due in February.
It now followed that timetable unless a major move was indicated by its market modelling, AgriHQ dairy analyst Susan Kilsby said.
Although her own milk price indicator rose 15c to $4.70 after the latest GDT, she did not expect Fonterra to move.
Westpac Bank senior economist Michael Gordon said he would sit at $5 although after the GDT result a case could be made for nudging the forecast higher.
“The market has clearly got the message: drought will curtail New Zealand’s milk production over coming months and, by extension, will have a significant impact on the volume of dairy products that are available for international trade,” he said.
ASB Bank rural economist Nathan Penny increased this season’s forecast to $5 and next season’s by 50c to $6.50.
“The NZ drought has moved the international dairy market, as well as the very small GDT offerings by Fonterra.”
SUSAN KILSBY
AgriHQ
“While the (GDT) price spike is impressive, it comes at a cost.
“This strong result follows last week’s drought declaration and the recent rapid slowing in milk production growth,” Penny said.
Kilsby was even more forthright.
“The NZ drought has moved the international dairy market, as well as the very small GDT offerings by Fonterra.”
ANZ Bank said the GDT results indicated some upside for its $4.50-4.70 forecast range and that next season might produce a price in the mid-$6/kg.
In the GDT auction cheese prices jumped 16.8% and skim milk powder rose 5.7%.
Both products could be in temporary short supply internationally because the United States west Coast port congestion was preventing exports from California’s giant dairy industry.
The GDT index has risen 30% since it bottomed out in December.
But it is still 35% lower than the recent peak a year ago when US$5000/tonne market prices produced the Fonterra NZ record seasonal payout of $8.40/kg.
Wait and see
Fonterra chairman John Wilson told the Federated Farmers Dairy council meeting in Taupo last week that farmers would be updated on the season’s milk price following this week’s board meeting.
He had no idea if the forecast would change but said he was pleased with the way GlobalDairyTrade had tracked recently.
“The $4.70 that we announced in December was based on powder prices coming up to levels of around about $3500 a tonne over the next couple of months.
“We are pleased where it is tracking at the moment but it needs to track where it is to hit $4.70.
“The direction is good.”
He had a dig at external analysts who reacted sharply to every twitch in the GDT or any of the other numbers that influence milk price.
“You read the market reports a month ago telling us we need to drop significantly from where we were at $4.70.
“Then I read this morning at about 6.15am that we should be lifting.
“We do a lot of analysis, a lot of work forecasting out. It’s very difficult with the volatility but we’ll continue to keep farmers as updated as we can.”
