When will global milk production hit a tipping point?
With global milk prices falling, the question is when will key exporting countries reach a tipping point where production starts to dip.
Prices have lifted by around 25% since last year’s low in August. Overall prices are now up 3% on a year ago, 4% below their 5-year average levels and 5% above the 10-year average.
Westpac chief economist Kelly Eckhold believes that expectations of reduced production data in New Zealand and offshore may still be supporting prices.
Last week’s GDT auction saw the price index rise 2.3%, while key whole milk powder (WMP) prices lifted 1.7%.
Eckhold notes that the result was again broad based and followed on from a similarly strong initial auction for 2024 in the first week of January. All products posted price rises.
Butter and anhydrous milk fat prices led the way, surging 5.8% and 4.3% respectively.
“We didn’t have a formal forecast for the WMP price result this time but the general trend in dairy prices is in line with the upward adjustment we made to the season milk price just ahead of Christmas,” he says.
“The futures market had pointed to a small WMP price rise at this auction, and so this auction modestly surpassed those expectations.”
On the demand side, last week’s auction saw demand from China, Middle Eastern and Southeast Asian buyers. But Eckhold remains remain cautious on prospects for the Chinese economy and associated Chinese dairy demand.
He noted that deflation in consumer and producer prices continued in China according to data from late 2023.
“We are retaining our milk price forecast for this season at $7.50/kg, in line with the mid-point of Fonterra’s guidance,” he says.
