Commentators welcomed the small decline of 0.7% in the GDT index as evidence of price stability following the 8.3% increase previously.
ANZ agricultural economist Susan Kilsby increased her farmgate milk price forecast by 75c from $5.75 to $6.50/kg milksolids, a 13% rise.
WMP prices hit a 2020 low on May 20 when the category average was US$2677/tonne.
The latest GDT average is $3218, some 20% recovery in just two months and 5% higher than the same time last year.
Kilsby’s commentary said demand for WMP has remained resilient through the covid-19 crisis and its present level is 9% higher than the average of the past five years.
But she remains cautious about the rest of this year as greater New Zealand production comes onto the market, leading to predictions closer to $3000 or a little below.
While farmgate returns will be tempered by the strong kiwi dollar, dairy companies will have hedged a portion of their foreign exchange around US64c.
Global economies are benefitting from central bank and government funding and Kilsby said it is debatable how long that will last.
“We anticipate these persistent global economic headwinds will become evident in coming months and at some point this is likely to put downward pressure on commodity prices.
“But for now we are confident the current strength in the market warrants a significant upgrade in our milk price forecast for the current season.”
Butter and anhydrous milk fat prices fell in the GDT event, by 4.9% and 2.8% respectively.
Westpac’s senior rural economist Nathan Penny said dairy prices have consolidated the massive gains of the previous auction.
WMP prices have comfortably wiped out any previous covid-19 related falls.
He is comfortable with a milk price forecast of $6.50.
Penny also noted Fonterra’s comment that improved market conditions in China have enabled it to lift the bottom of the milk price forecast range by 50c.
The consequent 25c lift in the mid-point, $6.40, is worth $450 million to dairy farmers.
Rabobank dairy analyst Thomas Bailey said WMP prices were buoyed by Chinese demand, notwithstanding a surge in domestic powder supply.
“It appears demand is stronger than expected and manufacturers have struggled to substitute New Zealand WMP with domestic stocks due to differences in taste and colour profiles.
“This is a dynamic we will be watching carefully as we make our way through the second half of 2020.”
Fonterra also provided a breakdown of its July fixed milk price contract, announced on July 17.
Just over 1000 farmers applied for a total of 65m kilos at the net price of $6.85.
Because the contract offer was for 15m kilos all applicants will receive a scaled-back 22% of their application volumes.
Fonterra does not intend to change the FMP scheme because it is delivering a generous result compared with the seasonal milk price forecast.
If the milk price futures market on the NZX Dairy Derivatives exchange remains at $6.80-$6.90 the Fonterra FMP offer on August 10 and 11 is likely to be swamped with applications from farmers.
