Emma Higgins | February 22, 2021 from GlobalHQ on Vimeo.
The GDT index of 1170 and an average price of US$3746/tonne rose 3% in the latest auction, the 10th rise in 12 auctions over the past six months.
During that time, the dairy market has lifted by 28% and it is now 20% higher than a year ago.
The index is the highest it has been since April 2014, towards the end of a season in which Fonterra delivered an $8.40 milk price.
However, that season contained GDT indexes consistently over 1400, a level somewhat higher than presently.
The second level of payouts was $7.59 in 2007-08 and $7.60 in 2010-11, both now threatened by the latest lift in world dairy prices.
The NZX forecast rose 8c to $7.58 after the GDT auction and the subsequent reaction on the Dairy Derivatives market for milk and dairy price futures.
Over the past two months the physical market, as monitored by the GDT prices, has consistently exceeded predictive prices in the derivative markets.
“While further price gains had been on the cards at auction, the sharp lift was some way in excess of what the futures market was pegging,” ASB economist Nat Keall said.
“In other words, dairy prices are continuing to surprise on the upside.”
He called the latest GDT auction a “whopper” containing 4.3% increase for whole milk powder and smaller lifts for cheddar, butter and anhydrous milk fat.
Strong demand from China has fuelled the market over the past three months, Keall says.
“Domestic consumption has risen steadily over the course of 2020 as the Chinese economy has picked up, but domestic stockpiles haven’t managed to keep up, despite aggressive purchases through most auctions,” he said.
Westpac senior agri-economist Nathan Penny says he expected the market to continue to rise in the short-term and the latest results confirmed his milk price forecast of $7.50.
Dairy prices fitted Westpac’s economic theme that 2021 would be the year in which NZ agriculture cashes in on its resilience.
Prices across a number of industries are firm and getting firmer, with dairy leading the way.
China was the only major world economy to grow in 2020 and that momentum has continued into 2021.
Penny says vaccination against covid-19 would also give world food markets a shot in the arm.
High grain feed prices were constraining the growth in milk production but eventually that would moderate, perhaps towards the end of 2021 and the beginning of 2022.
