Whole milk powder (WMP) prices rose 1.8% with Fonterra regular grade WMP to ship in December up 2.5% and in January up 1.9%.
Demand from China was strong and from here on the volumes of WMP on GDT will fall as the New Zealand dairy season wanes.
All of the WMP grades and contract periods were over US$3000/tonne, an indicator of strong farm gate milk prices when exchanged into NZ dollars (NZD).
Skim milk powder (SMP) prices were up 2.5% to average US$2800, anhydrous milk fat was up 4.1% and butter up 0.4%.
NZX dairy analyst Amy Castleton says her computer modelling after the latest GDT event, incorporating the dairy futures market reaction, was for a milk price of $7.13/kg milksolids, up 12c from a fortnight ago.
WMP futures have indicated prices above $3000 through until July 2021, with a peak of $3145 in April.
The September 2021 milk price futures market has risen 10c and now stands at $6.95 and the 2022 contracts have risen 2c to be $6.70. She says these levels have returned to where they were a month ago.
The unexpected movement in the latest GDT was lactose falling by 18.8% to US$887/t.
This product has lost 33% of its value over the past seven auctions and the price level is the lowest since March.
Lactose is not going to push the farm gate milk price around because it is a minor component of dairy processing.
Westpac agri-economist Nathan Penny published his first prediction for the 2021-22 season at $7/kg, along with a few provisions.
“Our positive view centres on further likely improvements in global dairy demand as the world gradually gets on top of covid-19 by next season,” he said.
But the major uncertainty was the NZD value against the United States dollar, having risen 2c in the past week to 69c.
If our economic resilience continued to surprise and interest rates began to rise then the NZD could increase and that would push down dairy prices.
“Looking by product, the key change would be the normalisation of milk fat demand and prices,” he said.
“Consumers have been eating less cream and other milkfat products in restaurant settings.
“The roll out of covid-19 vaccines will gradually allow more people to return to restaurants and other venues that milk fat consumption relies upon.”
On the supply side, Penny expects modest growth around the world in the order of 1% annually.
ASB economist Nat Keall says the latest GDT result was broadly in line with recent auctions – prices moving less dramatically than earlier in the year, volumes down modestly on year-ago levels, and a relatively flat contract curve.
“In aggregate, this continues to suggest a more settled market than earlier in the year, when sharp falls and steep lifts were the order of the day and covid-driven uncertainty was at its peak,” Keall said.
