Saturday, March 30, 2024

Taste for fat pushing prices

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The season-ending Global Dairy Trade auction produced buoyant prices to maintain $6-plus payouts and to push dairy fat product prices to new highs.
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Anhydrous milk fat (AMF) set a new record price of US$6631/tonne, topping the previous record of $6600 set in 2011.

Butter prices also set a new record of US$5479, up a whopping 11.2% in the May 16 auction.

Butter’s price more than doubled in the past 12 months while AMF was up 90%.

AgriHQ dairy analyst Susan Kilsby said AMF and butter prices had risen all season and showed no signs of slowing down.

“Strong demand for milk fat is attributed to many consumers in developed nations eating more natural foods rather than artificial or processed foods.

“Some of the poorer nations are also developing a taste for butter and cakes and cream are being consumed more often by wealthy Asians.

“The world remains very short of milk fat products and New Zealand is the largest supplier of globally traded butter and AMF.”

But the flip side was the skim milk powder (SMP) co-product created when milk fat was removed remained at low prices.

Kilsby said the combination of low SMP and high fat product prices was equivalent to the healthy whole milk powder (WMP) prices and NZ had an established advantage in markets for WMP.

On the other hand, European processors could harvest the high fat prices and sell SMP into intervention stocks, which they were doing.

The AgriHQ milk price indicator for the old season rose by one cent to $6.23/kg, suggesting some potential for a top-up by Fonterra this week.

The indicator for next season rose by 19c to $6.45, helped by the strong fat prices and the steady rise of WMP prices.

The WMP price index rose 1.3%, extending a 20% rise since March.

High world prices and a slightly lower NZ dollar had pushed the ANZ Bank forecast for the new season to $6.75 along with a 15c to 20c upside for the old season price.

The priority for farmers would be repaying the accumulated $1.50/kg of extra debt incurred during the downturn, rural economist Con Williams said.

ASB Bank also predicted $6.75 for next season plus a modest lift to this season’s $6.

Westpac lifted its prediction for next season from $6.10 to $6.50 though it expected Fonterra to begin more conservatively in the low $6s.

A $6.25 opening price would be accompanied by a $4 advance so support loan repayments would not start biting at monthly milk payments until much later in the season.

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