Senior economist Chris Tennent-Brown says the bank is lifting its forecast by 60c to $9.20/kgMS. The record milk price - $9.30/kgMS - was paid out in 2021-22 season.
He notes that rather than the downward sloping prices seen across the Global Dairy Trade (GDT) contract curve for whole milk powder prices at earlier events, they are now seeing the curve flatten, with average winning prices above US$3,500 MT over all contracts and WMP products, right through the key part of the season.
“Dairy prices are up significantly on year-ago levels, and we think Fonterra should have been able to already complete the bulk of this season’s USD hedging at a similar effective rate to last season’s US$0.6120. So we think Fonterra’s confidence to lift the milk price forecast range is well placed.
“In fact, we’re lifting our forecast for the season by 60c to $9.20/kgMS. It’d be great to see the previous $9.30 milk price record get broken, but we’ll wait to see a bit more of the season’s price action before calling that.”
He says how Fonterra can manage its product mix will be important, as well as the obvious importance of the trajectory for prices.
“We are not alone in expecting whole milk prices to trend lower at this time of the year, as they often do. But the opposite has been happening as Fonterra is hopefully capturing as much as possible of the very high prices in other products. There’s a balance of risks around any forecast, but at this juncture, we are comfortable to be picking a farmgate milk price in the top half of Fonterra’s forecast range, north of the $9 midpoint.”
