Tuesday, 08 December 2020 07:55

Global recovery on 'solid ground'

Written by  Sudesh Kissun
Nathan Penny, Westpac Nathan Penny, Westpac

Recovery in global dairy demand is on increasingly solid ground, says Westpac senior agri economist Nathan Penny.

In fact, further price increases may be likely during 2021 as the Covid-19 vaccine rolls out and in-restaurant demand picks up, he says.

His comments came as last week’s Global Dairy Trade (GDT) auction recorded a surprisingly solid result, with flagship whole milk powder prices rising 5% to just 3% below the same time a year ago and just 0.4% below the pre-Covid level. Economists and the futures markets were predicting modest price rises.

Penny says it is encouraging that the milk fat price recovery is gaining momentum. Butter prices have lifted for five consecutive auctions and rebounded some 20% or so over this period; last week it rose 3.8%.

“All up, these moves indicate that the recovery in global dairy demand is on increasingly solid ground,” says Penny.

Strong demand from China for New Zealand milk continues to keep prices firms.

ASB economist Nat Keall notes that there were broad-based price lifts among all the key commodities, but the rise in WMP prices was particularly marked.

He notes that the quantity sold was about 12% lower than the previous auction.

“This is one of the more dramatic price moves we’ve seen at recent auctions. Prices were higher across the contract curve but, interestingly, it was the further-dated contracts that commanded the highest prices,” he says.

China has remained the dominant player across recent auctions, and while some buyers there have built up a decent stockpile, demand is continuing to rise, he adds.

“Dairy import volumes in China were up across the board in the latest data, with food insecurity a big theme. Although New Zealand faces growing competition from other exporters, we expect solid Chinese demand to help support prices at future auctions.”

Keall says it is likely the milk price could finish above the $6.75/kgMS farmgate price it is forecasting.

Westpac, which is forecasting a milk price of $7/kgMS, says the positive demand backdrop reaffirms its forecast.

Keall notes there are still a couple of factors that give them pause for thought when it comes to its milk price forecast. Production is one such factor. Soil moisture data from NIWA suggests that growing conditions as the summer begins might be decent.

“Production is up 1.8% season-to-date on last time around, according to Dairy Companies Association of New Zealand (DCANZ), and it might keep the farmgate price from rising too high,” he says.

“The other factor is the strength of the kiwi [dollar]. That’s another negative for our overall price forecast, given the impact on any further hedging Fonterra has to do.

“Still, the risks to our $6.75 milk price forecast are now firmly skewed towards the upside. We’re keeping an eye on our forecast and will be closely watching the coming auctions for news.”

More like this

Dairy demand tipped to firm

Demand for dairy will firm over the next two years as  the global economy rebounds from Covid, says Westpac senior agri economist Nathan Penny.

Featured

Merlo goes greener

Obviously not wishing to get left behind by some of its competitors, Italian manufacturer Merlo is planning to add to its green-liveried telehandler range- with another set of green credentials in the shape of an all-new, all-electric battery-powered Merlo e-Worker model.

 

Growing a family legacy

What started with planting some acacia trees 25 years ago has become a multi-generational passion for the Hunt family in Te Awamutu.

Moves to improve winter grazing requirements

DairyNZ says it supports recommendations to the Government from an advisory group looking to improve winter grazing rules for farmers and achieve better environmental outcomes.

National

Expat workers ready for NZ

Dairy industry recruitment company Rural People Limited is seeing a huge increase in overseas interest to fill New Zealand farming…

Machinery & Products

Kubota ROPS tractors here

Kubota New Zealand product specialist Shaun Monteith says Rollover Protective Structure (ROPS) tractors make up 30% of all tractors in…

» The RNG Weather Report

» Latest Print Issues Online

Milking It

Dung paint

India now has its own cow dung paint, a world-first. 

Fresh for 60 days

A Queensland-based company is set to release its own production of milk this year that stays fresh for at least…

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter