It is an encouraging picture for New Zealand farm gate milk prices with peak spring production less than a month away.
The GDT price index rose by 2.2% and whole milk powder prices increased by 1.7%, returning to levels above US$3000/tonne, where they had not been since August.
Because Fonterra is the world’s largest trader of WMP and derives more than half of its revenue from that product, the latest auction prices bode well for the farm gate milk price.
ASB and Westpac said their milk price forecasts of $6.75 and $6.50/kg respectively were looking firm, with more upside risk than before.
NZX Dairy Data and Insights said its forecast milk price had risen 9c to $6.99/kg after the GDT event and the dairy derivatives market response.
All WMP futures prices had risen over the three weeks since the previous GDT event, and all contracts were now quoted over $3000, the peak expected at $3040 in December.
NZX said milk price futures contracts for September 2021 (current season) had risen 17c over the period between GDT events and was $6.77 last Thursday.
ASB economist Nathaniel Keall said it was encouraging for dairy farmers to see the forward contracts for WMP rise above the $3000 threshold.
“Previously we highlighted healthy milk production data and continued economic uncertainty overseas as downsides to that ($6.75) forecast over recent weeks, but all-up, the GDT result suggests those risks are receding,” he said.
Westpac senior agri-economist Nathan Penny said the second consecutive rise in the GDT index occurred as the NZ spring milk peak began, despite recent data that showed a strong start to the season.
Production in August was up 4.7% ahead of the previous corresponding month.
“In the short-term, strong NZ spring production still has the potential to put pressure on prices, although for now firm global and especially Chinese demand is dominating.”
The offering volumes in the latest GDT were down compared with this time last year, although volumes were picking up as they do at this time of the NZ season.
In particular, there was less butter on offer because Fonterra said it was getting better prices off GDT, helping to explain the upward price pressure as the supply tightened.
Butter rose 8.4% on GDT and anhydrous milk fat rose 5.4%.
The latest 2.2% increase in the GDT price index followed the 3.5% rise on September 15.
The rally followed a total 8.3% fall in the market between July 7 and September 1.
