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.
WMP prices sit above the key psychological barrier of US$3,000/metric tonne for the first time since August.
WMP price is the key driver of the farmgate payout that farmers get. Last week’s GDT auction recorded a 1.7% rise in WMP prices to US$3,041/MT. The GDT price index rose 2.2%.
Westpac senior agri economist Nathan Penny says the price strength points to firm demand.
“The firm overall result points to global dairy demand remaining relatively firm, despite the impact of Covid,” he says.
“Importantly, WMP prices topped the key psychological barrier of US$3,000/MT for the first time since August, indicating a degree of confidence in the market.”
Moreover, prices have firmed as New Zealand production hits its seasonal peak. And that is despite recent data suggesting a strong start to the season. August production is running 4.7% ahead of August 2019, according to Penny.
He says Westpac remains “cautiously optimistic” on the dairy price outlook.
“The result overnight reinforces our $6.50/kg milk price forecast for 2020/21. If anything, the result introduces some upside risk to our forecast.”
In the short-term, he says, strong New Zealand spring production still has the potential to put pressure on prices, although for now, firm global (Chinese) demand is dominating.
ASB economist Nat Keall says farmers will be pleased to see the improvement in prices over the past two events.
ASB’s forecast payout sits at $6.75/kgMS.
Keall is encouraged by the result. “We had shifted our forecast up from $6.50 back in July after a couple of bumper auctions, but falls in subsequent auctions in August put a bit of pressure on that number.
“Given that fact, it’s encouraging to see WMP lift a second consecutive auction and is now up above US$3,000/tonne.
“Notably the curve across the forward contracts has flattened too. There is still a bit of a kink in the near term as buyers secure supply, but the other four contracts have stabilised with prices above the US$3,000/tonne mark.
“That’s what we need to see to have confidence in our $6.75 milk price forecast.”
