ASB lifted its forecast by 25c to $6.25/kg milksolids and Westpac said there is obvious upside risk to its $6.30 forecast, which now looks conservative.
Westpac senior economist Anne Boniface attached the same upside risk comment to next season’s milk price, saying new, better prospects indicate $6.75 or more for 2019-20.
NZX dairy analyst Robert Gibson said his milk price forecast was revised to $6.29, at the top of Fonterra’s range of $6 to $6.30.
The strength of the GDT price rises across the board, except butter milk powder down 3.1%, surprised market analysts.
They said the possibility of drought bringing a halt to New Zealand’s strong milk production growth this season is suspected to be the reason.
As the world’s largest exporter of whole milk powder, the developing NZ dry spell boosted prices of that dairy commodity by 8.4% to slightly above US$3000/tonne.
Rennet casein went up by 10.9% to nearly $5600.
The index finished at 1005, its highest since last June, being the latest of five GDT index increases since November.
The market indicator has risen nearly 19% since then and is only 5% below its highest point of 2018.
WMP prices rose on average $250/t, the biggest leap since the second half of 2016 when dairy prices collectively went up by 50% over five months containing nine auctions.
WMP has now risen 16.4% since its lowest point in November.
After months languishing below US$2000/t, GDT skim milk powder prices rose in four sharp jumps totalling 25%, to be above $2500, their highest level since February 2017.
Over the past three months anhydrous milk fat and butter are up 22% and cheddar is up 12%.
Dairy futures broker Nigel Brunel, director of OMF, said the dairy derivatives market did not foreshadow the strength of the rise in GDT prices last week.
“Futures prices have predicted big physical price rises before and been wrong and this time the picture was reversed.
“Since the GDT event the yield curve for WMP futures has risen by $200 to $280 over the next five months.
“Fears of a dry end to NZ’s bumper season have lifted WMP to the top of its recent range.
“The milk futures market has also lifted for this season and the next, raising the welcome possibility for farmers of four $6-plus seasons in a row.”
WMP prices have definitely been more stable and less volatile over the past 30 months since the end of the 2015-16 slump and that might be due to European Union intervention with SMP, along with supply-demand balance out of NZ, Brunel said.
But AMF and butter prices have bounced around more than WMP and SMP.
He thinks the use of dairy futures by farmers has plateaued as everyone waits for the introduction of Fonterra’s new fixed milk price scheme in June.
