Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
A milk price over $6/kgMS looks likely, several bank economists say.
After the 4.2% jump in the Global Dairy Trade (GDT) overall index last week Westpac led the charge last week, upgrading by 20c to $6.30/kgMS. Fonterra’s current farmgate forecast is $6-$6.30/kgMS.
No other banks are revising upwards at this stage but say at least they won’t be going down.
Rabobank is forecasting $6.25/kgMS for the 2018-19 season and says last week’s GDT result underpins that.
ANZ says while it has yet to revise the result, at least it removes the downside risk to its $6.10/kgMS forecast.
BNZ says a milk price over $6/kgMS for 2018-19 is now more likely.
ASB is holding at $6/kgMS for now.
Westpac’s Anne Boniface says GDT dairy prices have now risen 7% over the last month and are up 11% from their November lows.
Last week’s result was led by a 10.3% jump in skim milk powder (SMP) prices, while whole milk powder (WMP) prices were also up a solid 3% to US$2777/t, Boniface says. The recent lift in SMP prices is particularly notable given the 14.5% increase in the volume of SMP sold in the most recent auction. Usually the volume of SMP sold gradually falls at this time of year.
ANZ’s Susan Kilsby says the latest auction and the upward run in prices over the last three months have removed most downside risks to their $6.10/kgMS forecast.
“I am quite confident now that we will see a milk price over $6/kgMS this season but we haven’t done an official revision yet,” she told Dairy News.
Last week’s GDT rise was a little stronger than expected by the market, particularly the lift in skim milk powder pricing.
“Market sentiment has changed and we are starting to see buyers jumping back in because prices are looking like they are moving back up.”
Milk production growth across the globe has slowed down, she says. Buyers are becoming active before prices go higher.
BNZ’s Doug Steel told Dairy News GDT dairy prices last week posted the biggest gain in nearly a year and the fourth consecutive rise. Even in the context of a circa 2% lift in the NZ dollar since the previous auction, it generates a net upward influence on NZ milk price calculations.
A milk price over $6/kgMS for 2018-19 is now more likely, he says.
Noting the jump in SMP prices, he says there is even more upside potential here, if the average spread to WMP before the big stock build in 2016 were to reassert itself.
“There were certainly no hints of fading demand on account of recent equity market wobbles or slowing growth in China. Indeed, unsatisfied bidder numbers rose. WMP prices remain below the RBNZ’s $US3000/t medium term projection, but a bit less so than before.”
The quantity sold at this event was nearly 20% higher than a year ago, he says. “More volume at higher prices; it’s all good for income.”
