Nathan Penny | January 25, 2021 from GlobalHQ on Vimeo.
The Global Dairy Trade (GDT) index rose 4.8% in the second auction of January and has now risen 17% over the past three months.
The index is the highest it has been since May 2014, incorporating the highest whole milk powder (WMP) average since December 2016.
In the latest auction WMP climbed a steady 2.2% and skim milk powder jumped 7%, up US$200 to $3243/tonne.
But they were overshadowed by anhydrous milk fat rocketing up 17.2% to $5398 and sister product butter rose 4.6% to $4735.
Westpac senior agri-economist Nathan Penny says the milkfat products responded to renewed demand from restaurants.
“Over the last four months, AMF and butter prices have jumped a whopping 38% and 44%, respectively,” Penny said.
“This is a key development as it demonstrates that demand for products consumed in restaurants and other foodservice settings has returned.”
He says dairy markets have put covid-19 well and truly in the rear-vision mirror.
“From here, we expect the price momentum has further to run, as global dairy supply takes time to respond to price lifts,” he said.
Westpac added 50c to its forecast of this season’s farm gate milk price, now $7.50/kg milksolids.
It expects that global dairy product prices will remain firm for the rest of this season and that next season would start with a $7.25 forecast.
Penny says the long-run milk price expectation was now $7 rather than $6 and as that became built into business plans, the backlog of dairy farm sales would clear and land prices would increase.
“However, I don’t see a return of the 2013-14 clamour for dairy expansion because alternative land uses are attractive – horticulture, sheep and beef, and forestry,” he said.
Rabobank dairy analyst Emma Higgins says China this month had lifted its buying of milk powder by one-third compared with January 2020.
She noted the jump in milkfat product prices, but did not read too much into the China foodservice recovery story.
The important Chinese New Year period was about to kick off and covid-19 outbreaks prompted some local authorities to restrict travel and caution against eating out.
NZX dairy analyst Amy Castleton says the forecast model milk price rose 16c to $7.53 after the GDT auction, along with the reaction by the derivatives market.
The September 2021 milk price futures contract is now at $7.25 and the 2022 contract price is $7.05.
NZX expressed some apprehension that the high dairy product prices would last long enough to deliver a $7.50-plus milk price at the end of the season.
“Shipping delays may be the reason we have seen strong GDT results recently, which may mean buyers will step away shortly,” she said.
