After Global Dairy Trade (GDT) prices increased by 3.9% in the first auction of the new year, NZX senior analyst Amy Castleton’s computer model of the milk price went to $7.36.
Both the new ANZ forecast and the NZX estimate are near the top end of the current Fonterra milk price range $6.70 to $7.30.
The advance price schedule on which dairy farmers receive their monthly milksolids payments is now based on $7, with a good prospect of an increase in early March.
ANZ agricultural economist Susan Kilsby says the milk price prediction was firming up because 70% of the products from this season’s New Zealand milk supply will have been contracted.
The rising value of the NZ dollar will not impact this season’s milk price but will hold next season’s forecast to $6.40.
Milk supplies around the world are modestly increasing but rising demand has matched the supply improvement.
“We do remain cautious about the longer-term outlook and still see scope for dairy commodity prices to soften in the second half of 2021, which will impact the milk price for next season,” she said.
European Union, Australian and NZ milk supplies are forecast to increase 1%, but that rate of growth can be absorbed by demand growth.
These are weather and yield-related increases, not expansions of the cow herds.
Milk supply growth in the United States is higher but presently being absorbed by food welfare programmes containing liquid milks, yoghurts and cheeses, committed out to April.
Kilsby says dairy products sold steadily through the pandemic, helped partly by their longer storage lives. This means dairy products retain their value, should they be delayed by shipping and port disruptions.
The prospects of disruption might have caused some buyers to stockpile and limit upside price risk, which would then raise the possibility of compensatory slumping demand in future.
“It is not clear at this stage if any significant stocks of product are being stored in-market, but the strength of demand evident at the first GDT event would indicate otherwise.
“Buyers were still very keen to secure product – particularly product contracted for immediate supply,” she said.
