ASB senior rural economist Nathan Penny has set his first milk price prediction for next season at a bullish $7/kg milksolids and said this season’s $6.25 has upside risk.
“The conditions for a new dairy price cycle have begun to emerge,” he said in a Rural Economic Note to bank customers.
For the past 30 months international whole milk powder prices have traded in a relatively narrow $US1000/tonne range.
That was in contrast to the greater volatility previously. From 2013 to 2016 the highs and lows differed by US$3700.
Penny suggests a new cycle will have price amplitude between the two recent patterns – not steady but not extreme.
The conditions for the start of a new cycle are supply growth lagging behind demand growth, with little prospect of a catch-up in the short term.
Australian dairy production was hammered and the European Union and the United States are experiencing only modest growth.
New Zealand milk production is up 5.6% this season to the end of January but that is probably as good as it gets, Penny thinks.
Hotter weather and a smaller herd will peg NZ growth in 2019 back to 1%, similar to the EU and US, which won’t keep up with worldwide demand growth of 2%.
The result will be rising dairy prices during the first half of this year, he predicts.
The GDT index rose 0.9% on February 20 and that included a 2.9% increase for cheddar, 2.8% for skim milk powder and 0.3% for WMP.
The index has risen 20% since November and SMP, freed from stockpile by the European Union, has increased 30%.
Westpac economist Anne Boniface said news of the 7.7% increase in January’s milk production and the season-to-date 5.6% might have dampened price expectations in the GDT results.
“While dairy farmers will be hoping for some rain in the coming weeks, many farmers will be well prepared for a period of dry weather with plenty of feed on hand and stock in good condition after excellent pasture growth in the earlier part of the season.
“If dairy prices are maintained at current levels in the coming weeks we think there’s still a little bit of upside risk to our milk price forecast of $6.30 this season.”
