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.
Westpac senior agri economist Nathan Penny believes farmers can continue to expect a healthy 2021-22 farmgate milk price of $8.00/kgMS.
He says the recent downward trend in prices reflects two factors. Firstly, New Zealand milk production has ended 2020-21 on a high. April production was up a whopping 11.6% on the same month last year.
"As a result, we expect production to end the season a solid 2.5% ahead of the 2019/20 season," Penny told Dairy News.
The second factor, he says, is an element of cashing in at very high prices in recent month.
Penny points out that the quantity sold over the last three months is around 17% higher than the same three months a year ago. Similarly, over the same period, Fonterra has offered WMP contract 6 - product for delivery in 6 months' time - in another attempt to make the most of the current very high prices.
"The last time Fonterra offered contract 6 was back in 2018," he explains. "The second factor bodes well for the new season's farmgate milk price. Indeed, Fonterra has pre-sold more than it would normally have at this stage of the season, and it has done so at very high prices."
Last week's Global Dairy Trade (GDT) price index dropped 1.3%, the fifth consecutive fall - though for whole milk powder it was the third consecutive drop. WMP prices fell 1.8% to just uner US$4000/MT for the first time since February.
Butter and skim powder prices each fell 1.7%. Anhydrous milk fat prices headed the other way, rising 0.6%, while cheddar and lactose prices also gained.
