Tuesday, 25 January 2022 06:55

Red hot start to the New Year!

Written by  Sudesh Kissun
Milk production in NZ and around the world has been sluggish. Milk production in NZ and around the world has been sluggish.

Global dairy prices have started the New Year in red hot form and ASB economist Nat Keall says a record milk price is now "a practical certainty".

ASB is now forecasting a milk price of $9.10/kgMS. If achieved it will easily eclipse the previous record price of $8.40 set in 2013-14 season.

Whole milk powder (WMP) prices are now sitting over US$4,000/MT; cheddar and butter prices set record highs in last week's auction. Overall prices lifted 4.6%, while WMP prices lifted by 5.6%.

Keall notes that, all up, the overall GDT price index made its largest single auction gain since last year's March auction.

Tight global supply is the driving prices higher.

Keall says domestic conditions over the summer have been poor, with hot and dry weather the order of the day in much of the country.

This month Fonterra revised its forecast collections for the season downwards by 25 million tonnes of milksolids.

"With a softer production outlook also evident in Europe and North America, it's a potent combination for dairy prices - there's a willingness on the part of buyers to pay big premiums to secure supply," says Keall.

He believes the underlying global dairy demand and supply balance should keep prices supported over the remainder of the season.

"With all contracts trading north of US$4,000/MT at present and longer-dated contracts trading at a premium, prices should keep up the momentum over the near term.

"We think that'll be enough to push this season's farmgate price north of the $9 mark."

Westpac is sticking with its forecast milk price of $9/kgMS and its senior agri economist Nathan Penny expects weakness in New Zealand dairy production will further underpin global dairy prices, at least in the short term.

"After a run of cold and wet weather earlier in the season, dry weather is now compounding the weakness in New Zealand production," says Penny.

With production in other key regions like the EU and US similarly sluggish, risks to the milk price are mostly upside, he notes.

"For example, ongoing dry weather could put additional dents in New Zealand production and push prices higher again. Meanwhile, omicron-related supply chain issues could also lead prices higher."

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