Friday, March 29, 2024

Milk price increase now unlikely

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World dairy prices were mainly steady to slightly weaker in the latest Global Dairy Trade auction, dampening the prospect of Fonterra increasing its farmgate milk price forecast.
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Fonterra traditionally makes a milk price prediction with the release of its interim results, this year on March 21, and it is more than three months since the payout was last adjusted.
It might not move, however, if the adjustment would be only minor.

AgriHQ dairy analyst Amy Castleton said her computer model spat out an easing of 5c to $6.26/kg milksolids after the GDT auction and the subsequent futures market reaction, to sit 14c behind Fonterra’s $6.40.

Rival co-operative Westland Milk Products trimmed 10c off its payout range, down to $6.10-$6.40/kg, citing milk pick-up and processing difficulties on the West Coast from ex-tropical cyclone Fehi.

“The costs to Westland were significant, equivalent to some 8-10c/kg on payout. As a result, we were obliged to approve a new payout forecast range of $6.10 to $6.40,” chairman Pete Morrison said.

Whole milk powder and butter prices weakened by about 1% in the latest GDT auction, being the two products that have the biggest impact on Westland’s earnings.
Butter milk powder fell by 4.3% and anhydrous milk fat by 3.2%.

On the plus side cheddar prices rose 1.7%, casein by 2.2% and skim milk powder by a welcome 5.5% to sit about US$2000/tonne for the first time since last July.

That was a result of extraordinary demand for Fonterra UHT specialty SMP in the short term and prices paid in the range of $2900 to $3200, compared with longer term deliveries about $1900.

For that distortion alone, Castleton thought the 5.5% lift in the SMP average would be short-lived while the European Union held large stocks of intervention SMP.

The GDT index fell by 0.6% on top of a 0.5% fall at the previous auction.

After some larger falls at the end of 2017 followed by some larger rises in January and February the index appeared to have resumed a horizontal drift typical of much of last year.

As the world’s largest dairy exporter, Fonterra’s market pronouncement would likely be that supply and demand are in balance and a $6-plus payout will be a good result for its farmers.

There will be another GDT auction on the eve of Fonterra’s half-year results but its figures and forecast will be locked and loaded by then.

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