Three bank economists see a risk of downside to farmgate prices from last week’s GDT auction where the overall price index dropped 2.4%.
However, BNZ senior economist Doug Steel says farmers should not expect Fonterra to announce such a price this week.
With the season set to begin on June 1, it’s early days for predicting how dairy prices will play out during the next 12 months, Steel says.
BNZ does not issue an opening forecast; it is predicting the final payment for the season to be about $6/kgMS.
“With five straight price increases on GDT, a $6 payout for the new season now looks more certain,” he told Rural News.
“But it’s hard to forecast where prices will go; it also depends where prices are when most of our products are sold.”
Steel says BNZ does not forecast an opening price because “it’s hard to forecast what someone else (Fonterra) will forecast”.
“But with current prices and currency levels, a $7-plus payout is possible…. But I will be surprised if Fonterra’s forecast payout will be anywhere near that. It’s very early days and the season has not even started.”
The GDT price index rose 3.2% on the previous auction; a strong demand for fat products saw a big rise in butter and anhydrous milk fat prices.
Surprisingly, the price for Fonterra’s flagship product, whole milk powder, rose 1.3% over the previous auction, despite the market forecasting a 2% drop. The WMP price now sits at US$3312/tonne.
Westpac senior market strategist Imre Speizer says the rise in the GDT price index was led by fat products.
“WMP was more subdued, up 1.3%, which was slightly above futures prices which implied a 2% fall. The positive outcome has implications for analysts’ forecasts of the milk payout for the next season (2017-18),” he says.
Butter prices rose 11.2% to US$5479/t and AMF 8.2% to US$6631/t.
Steel agrees that demand for fat products remains strong; it also explains the price difference between WMP (US$3312/t) and skim milk powder (US$1998/t).
For the current season, Fonterra has set the milk price at $6/kgMS.
Steel says compared to last season’s $3.90 payout it makes a world of difference to farmers.
Fonterra’s board meets on Wednesday and an announcement is expected on the new season’s opening forecast payout soon after the meeting.