The recent steep pick-up in Fonterra's cheese and casein
stream prices may be running out of steam, ASB rural
economist Nathan Penny says.
A convergence of product prices in GlobalDairyTrade auctions
had been cited as encouraging for Fonterra, after the
co-operative left its forecast milk price unchanged at $8.30
because of the disparity between milk powder prices and its
cheese and casein stream.
In this week's auction, Fonterra's cheese and casein stream
slowed its recent rapid price gain, Mr Penny said. Before the
auction, cheddar and casein prices had gained 12% and 34%
respectively since the end of November, so a pause in that
lift was not surprising, he said.
The United States, Japanese and European markets were key for
that stream, he said.
''With these economies improving to varying degrees, we will
watch with interest to see if cheese and casein prices
receive further support from here and, in turn, whether there
is any potential for movement on Fonterra's milk price for
the current season,'' he said.
The latest GDT auction saw overall dairy prices dragged a
touch higher by a lift in whole milk powder and butter
Last week's ASB New Zealand commodity price index rose 1.8%
in New Zealand dollar terms as dairy prices posted solid
gains and the Kiwi fell 1.5% against the US dollar.
Looking at the 2014-15 season, ANZ economists said China's
import demand for whole milk powder to substitute for lower
domestic fluid milk production did not appear to be tailing
off despite a record domestic farm-gate price and reported
sta-bilisation in milk flows.
In 2013, China bought nearly 620,000 tonnes of milk powder, a
53% increase on 2012, and New Zealand supplied 91% of that.
A downward price adjustment was likely to come in the second
quarter of the year, when New Zealand dairy farmers sought to
extend lactation for as long as possible and northern
hemisphere production peaked, meaning more milk could be
diverted into milk powders and other exportable goods instead
of liquid milk.
But, given tight global stocks and good Chinese demand, only
a modest adjustment seemed likely, the latest ANZ Agri Focus
That meant an opening milk price around the low $7kg/ms mark
was ''becoming a real possibility''. Combined with this
year's record $8.40kg/ms, such a result would ensure strong
farm-gate cash flow into 2015.