Thursday, March 28, 2024

Buyers bide their time

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The next two months will be crucial for the 2018-19 season milk price as buyers work out New Zealand’s dairy production, Rabobank dairy analyst Emma Higgins says.
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Fonterra will offer more whole milk powder on the Global Dairy Trade platform where prices have fallen for the past four months and seven out of eight auctions.

As the spring peak looms an NZ milk production to the end of August was 5% or eight million kilograms of milksolids ahead of the corresponding time last season.

“With plenty of milk, ample product and expectations reflecting the choice available, buyers are remaining on the sidelines,” Higgins said.

“Near-perfect winter and spring weather thus far (unusual, based on the last couple of seasons) has provided a solid platform for a robust production season ahead, providing a level of comfort for buyers that there will be options aplenty and capping prices.”

Higgins said the biggest volumes of WMP will be offered by Fonterra on GDT in October and November and the results form a big part of the season’s milk price outcome.

Last season the farmgate milk price was composed of 64% WMP, 20% skim milk powder, 9% butter, 5% anhydrous milk fat and 2% butter milk powder – the five reference commodities.

Rabobank will review its farmgate milk price forecast of $6.80 and release a new number in early October.

The GDT index fell by 1.3% on August 18, adding to a cumulative fall of 14% since mid-May.

WMP prices were down 1.8% or 16% since May.

SMP prices fell 1.1% in the recent auction but have improved throughout this year, by 16%, as the European Union sells down its stockpile.

Westpac analysts have already reduced their milk price forecast by 25c to $6.25 and said they continue to view Fonterra’s $6.75 forecast as too optimistic.

“While we have long been factoring softer dairy prices into our outlook, prices slid further than we had been expecting in recent weeks,” senior economist Anne Boniface said.

“And with farmers pleased with pasture conditions in many parts of the country, at this stage prospects for NZ milk supply appear favourable.”

ASB senior rural economist Nathan Penny said world dairy prices are 15% below this time last year but the lower-value NZ dollar has offset all but 4% of that fall.

He picks a 2% increase for NZ milk this season. Production growth greater than that will likely lead to weaker prices.

The pattern of the GDT index in 2018 has been like that of 2017, tracing a slow decline from autumn through spring.

When it became obvious last summer that NZ milk output faced weather challenges, the GDT rose about 12% from December to February.

It remains to be seen if a repeat will occur, Penny said.

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