Last week’s Global Dairy Trade (GDT) result of the overall price index down 1.2% was a “benign” result, he says. And farmers would be encouraged by Fonterra increasing the milk price forecast from $6.40/kgMS to $6.55/kgMS.
New Zealand farmers have had a challenging season grappling with everything from drought to cyclones.
They should take some confidence that the payout has increased from a global perspective; in other export milk markets farmgate prices are actually falling, he told Dairy News.
“Prices are coming down in places like the US and Europe. So to be getting a step up in their payout at a time when global prices are falling is encouraging for NZ farmers.”
The global market is transitioning from the Oceania season to the European peak, he says. Because NZ has been dry through the shoulder of the season, there’s been a bounce back since late last year for Oceania commodity products.
“There has been a premium for Oceania products particularly whole milk powder (WMP). We are starting to see that stabilise and hence you get the result (of last week’s GDT) where there wasn’t much of a movement across the dairy complex.
“What you are likely to see, particularly in the next three months, is pressure coming back in the market.”
The rate of production growth is slowing, but it is still growing as the Europeans head into their peak.
“That all lends itself to some pressure in the short term on oversupply on the global market,” says Harvey.
“There’s been a small correction in the last couple of GDT events but you have also had chartered import programmes being quite healthy. They have been buying WM… because it is seasonal to be buying product late last year and early this year to meet the tariff window, but you also have China on a sustained growth pattern.
“When you’ve got China in the market buying WMP and you have a challenging season that leads to the healthy WMP price we have been seeing. That is why Fonterra has been able to increase the farmgate payout for the current season.”
