Tuesday, 26 October 2021 12:55

Another record milk price forecast!

Written by  Sudesh Kissun
Lower milk production in New Zealand and steady global demand are helping keep dairy prices buoyant. Lower milk production in New Zealand and steady global demand are helping keep dairy prices buoyant.

A new record milk price for this season has been forecast as dairy products fetch higher on the back of strong demand and softening supply.

ASB has responded to last week's Global Dairy Trade (GDT) price rise by bumping up its forecast milk price for 2021-22 season by 55c to $8.75/kgMS.

If this forecast comes to pass, it will smash the record milk price of $8.40/kgMS set eight seasons ago.

ASB economist Nat Keall says GDT events over the first half of spring have shown no sign of demand softening.

And with supply continuing to look tight, ASB is comfortable making a sizeable upward revision, he adds.

He says Fonterra should also be around 80%+ hedged by this point in the season.

This means the co-operative could wind up with an effective exchange rate just north of the US$0.69 mark - a favourable exchange rate considering where NZ commodity prices are.

Keall cautions that there's still a lot of uncertainty - commodity markets have been particularly volatile over 2021 thus far.

"Still, the trends over the beginning of spring suggest that the possibility a record farmgate milk price for the season is very much alive," he says.

Last week's GDT results saw price increase across all six products.

Benchmark whole milk powder (WMP) prices lifted by 1.5% cementing global dairy prices at very healthy levels. WMP prices have lifted a combined 6.7% over September and October, and now sit 25% above year ago levels. Taking a longer-term perspective, prices are around 20% above their five-year average.

But Keall points out that it's not the headline moves that are key.

"The real story is that forward contracts point to prices maintaining momentum well into the latter half of the season.

"The GDT contract curve developed a sharpish downward slope over the winter, but spring developments have seen the curve flatten over the past few quarters with prices stabilising in a healthy US$3,700-3,900/MT range.

"There will be further movement into summer, but the implication is that buyers expect supply to remain tight moving into the latter half of the season.

"On that note, it looks increasingly likely production will undershoot the expectations most of us held earlier in the year."

Milk production in key dairy producing markets, including New Zealand, is down.

With steady demand, this is putting upward pressure on prices.

Westpac senior agri economist Nathan Penny expects ongoing weakness in global dairy production to continue to underpin global dairy prices.

New Zealand dairy production over August was down 4.2% compared to August 2020.

"In addition, anecdotes suggest that this production weakness has continued through September and into October," he says.

Westpac is forecasting a milk price of $8.50/kgMS.

"All up, the solid result and outlook reinforces our 2021-22 farmgate milk price forecast," he says.

More like this

Record milk price is holding

Last week's rise in global dairy prices has further boosted the chance of a record-breaking $9 milk price for the season.

High milk prices bite Fonterra's profit

Soaring whole milk powder (WMP) prices are lifting forecast milk price to Fonterra farmer suppliers but it is also affecting the co-op’s profitability.

National

Plan makes co-op competitive

Fonterra's proposed capital structure will allow the co-operative to compete with other processors based on its milk price and overall…

Elite herd offered online

An elite Southland Friesian herd is set to become the biggest single livestock offering sold online so far.

Machinery & Products

Solution for rowdy cattle

Having walked away with a Fieldays Innovation Award and a useful cheque back in June, Springarm Products has recently signed…

Next generation swathers

Claas' latest generation of seven, dual-rotor central LINER swathers are said to offer numerous innovative features and functions to ensure…

Below ground fert server

Bavarian fertiliser spreader manufacturer Rauch is testing a prototype unit for depositing fertiliser in row crops to depths of 10…

Press screw separator

Probably best known for its chopping units that form an integral part of many manufacturers’ umbilical effluent spreading and injection…

Hydrogen power to cut emissions

While the automobile industry heads full tilt down the electrification route, heavier industries such as trucking and construction appear to…

» Latest Print Issues Online

Milking It

Seaweed saviour

OPINION: Scientists in Ireland are going underwater to solve their dairy sector’s methane conundrum.

Due recognition

OPINION: National's new leader Christopher Luxon’s first speech after his elevation to the top job included one important line about…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter