Already it was possible that NZ seasonal supply might increase 1.5% rather than the 3% predicted earlier.
The direction of international market prices would depend very much on weather conditions over the next month in NZ, the world’s largest dairy products exporter.
The GDT price index rose 0.9% and whole milk powder prices 0.6% at last week’s auction.
ASB rural economist Nathan Penny found a recipe brewing for higher world prices because of surging butter demand and NZ wet weather acting as a brake on milk production.
For the second GDT auction in a row, Penny said the Fonterra farmgate milk price forecast could go up to $7/kg milksolids.
In the interim, the Dairy Companies Association said milk production in August was down 1.5% on last year and season-to-date production was up only 1.7%.
It contrasted with the Fonterra forecast of a seasonal lift of 3%, which would be revised at the same time it released the results from last financial year.
From the auction outcome and the futures market movements in the 24 hours following, NZX Agri re-calculated its farmgate milk price forecast to $6.54, down 11c.
It was the second such move in a month and called into question the sustainability of Fonterra’s $6.75 seasonal forecast.
“Following the latest GDT event we did see some positive movements in whole milk powder (WMP) futures prices but this was not sufficient to make up the decreases recorded since the September 5 GDT event,” AgriHQ chief analyst Susan Kilsby said.
“The news that NZ milk intakes in August were below last year has done little to stimulate activity in the WMP market.
“The seasonal lift in the availability of WMP appears to have offset any concerns buyers have regarding the availability of WMP due to less milk being available.”
She then commented on the prospects for a payout forecast movement when Fonterra released its 2017 financial results and made some market comments.
“Unless dairy commodity prices pick up soon the $6.75 target currently set by Fonterra will be difficult to attain.
“The slow start to the milk production season, along with solid demand from China should be supportive of prices.
“But thus far we have not seen the price response required to reach Fonterra's current milk price forecast.”
In the September 20 GDT, butter prices set a fresh record for the eighth time this year.
They were up 1.2% to US$6026/tonne, topping the previous record set in mid-July. Prices were 54% higher than 12 months ago.
Anhydrous milk fat (AMF) prices rose 5.3% to $6764, close to the record price of $6885 set in mid-June.
“Global butter demand continues to surge while supply is struggling to keep pace and global inventory levels are low,” Penny said.
“This dynamic suggests that records may continue to tumble through to the end of the year.”
NZ supplied more than half the butter that was traded across international borders, excluding trade between European countries.
Kilsby said the AgriHQ Milk Production Predictor had reforecast NZ milk supply growth of 1.5% across the full 2017-18 season, assuming normal weather conditions occurred from October onwards.
The model predicted output during the peak production months of October and November would be higher than last year because of a lift in the number of cows in milk.
But it was unlikely autumn production would match that achieved last season.
The 2017 autumn was extremely favourable for pasture production, which allowed more cows to be milked further through the season than normal and farmers took advantage of a higher payout than in the two previous poor seasons and the opportunity to recover from the flat spring.
The September 2018 milk price futures contract on the NZX Dairy Derivatives market had fallen seven cents to $6.65.
