More milk keeps prices soft

He noted that prices have softened a touch over November, after strong results over September and October. For example, whole milk powder, which rose 1.9% on Global Dairy Trade (GDT) auction last week, fell 0.9% over the month from the end of October.

"Dairy markets previously had been factoring in drought risk on the back of the El Nino weather pattern," he says.

"In our view, this has been overdone and may explain the pullback in prices over November. New Zealand water tables are generally very high and most farmers have ample feed on hand.

"This will help mitigate or dampen any drought impact."

Penny also notes that New Zealand spring production has started on a firm note, with September production up 1.3% compared to September 2022. A similar lift over October is on the cards.

Last week's GDT auction price index remained unchanged. In contrast, WMP prices lifted 1.9%.

By product, the result was mixed. Three price rises were matched by three price falls. Lactose prices led the way, jumping 6.4% while anhydrous milk fat prices also rose (0.9%). Cheese prices headed the other way, slipping 9.7%. Skim milk powder and butter prices also dipped, 3.8% and 1.1%, respectively.

Penny says the WMP price result was weaker than market expectations.

Meanwhile, Penny notes that Chinese demand is hinting at a pickup but it’s too early to start celebrating.

“Recent economic data have been more positive so this may translate into higher demand over time. However, on balance, we remain cautious. There have been both positive and negative developments since we lifted our milk price forecast on 18 October, and these have largely cancelled each other out,” he says.

Westpac is sticking to its milk price forecast for this season at $7.25/ kgMS. Last month Fonterra raised its 3023-24 season forecast farmgate milk price range to $6.50-$8/kgMS, with a new midpoint of $7.25/kgMS, up 50 cents.