Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
Open Country Dairy (OCD) chief executive Steve Koekemoer says the 7.5% drop in WMP price was “somewhat expected”.
At the GDT auction on August 4, the price of Fonterra’s flagship offering suffered its largest decline in more than three years.
WMP prices sit at US$3,003/metric tonne – around 6% below the pre-Covid level in January.
In his monthly message to OCD farmer suppliers, Koekemoer says the price dip was somewhat expected after the double-digit increase last month and with additional volume now on offer.
“I am also assuming that some customers will be holding back to see how the NZ season ramps up and to assess the supply side over our peak,” he says.
“We see this price drop as a predictable correction and anticipate pricing to maintain around current levels with some movement either way over the season.”
However Covid-19 looms large over future dairy prices.
“The greatest unknown is any potential impact from a further disruption in the supply chain through Covid,” he says.
“Although supply and demand are currently balanced, we have seen how the market can shift when the foodservice sector shuts down.”
While analysts have described the WMP price dip as tough and disappointing, for the time being they are sticking to their forecast payouts for 2020-21 of between $6.50 to $6.75/kgMS. Fonterra’s revised forecast price range is $5.90 to $6.90/kgMS.
OCD has a different milk payment. It has finalised the May Settlement Period price at an average of $7.04/kgMS.
Koekemoer says it is pleased that the price is within the forecast range set some time ago.
“It was a challenge to forecast the pricing for the earlier calendar months of 2020, but the sales team have done extremely well to extract as much value as possible from the market.
“We have also reviewed our forecast going forward and adjusted the settlement periods upwards.”
OCD’s board and management recently completed another round of farmer meetings.
Koekemoer says OCD factories are starting to ramp up with milk coming into the sites and the team is “ready and excited to deliver another record season”.
“Our review of last season’s performance shows exceptional results and you can be assured that your milk is in very good hands.”
