Weak auction not to shake milk prices

Firm milk prices ended at the auction but fonterra is expected to raise their forecasts. Photo: File
Firm milk prices ended at the auction but fonterra is expected to raise their forecasts. Photo: File

The trend of firmer dairy product prices came to an end at this morning's GlobalDairyTrade auction, with the GDT price index declining by 3.2% since the last sale, but economists still expect Fonterra to lift its farmgate milk price forecast any day now.

The decline, which included a 3.7% drop in key whole milk powder prices to US$3,189 a tonne, was broadly in line with futures market pricing, and followed two straight auction gains.

A wholemilk power price of over US$3,000 a tonne is seen as a positive for farm profits and today's price still represents a US$1,000/tonne improvement on where the benchmark product was trading this time last year.

The auction follows Fonterra's announcement last week that it would put more product up for sale on the GDT platform after revising its milk production forecasts for the current season to a 5% decline from a previous forecast of a 7% drop, thanks to improved weather.

As the season nears its end, there was little in the auction to change the view that Fonterra was likely lift its farmgate milk price to around $6.25, from the current forecast of $6.00 per kg, at this month's board meeting or sometime next month, economists said.

Fonterra's South Island competitor, Synlait Milk, has raised already raised its milk price to $6.25/kg.

"Current market developments and seasonal factors suggest there could be some more downside yet, but we struggle to see whole milk powder moving back below US$3,000/t," ANZ rural economist Con Williams said in a commentary. ANZ expects Fonterra's milk price to improve to $6.25/kg, as do many other banks.

AgriHQ dairy analyst Susan Kilsby said the markets were finely balanced.

"Many buyers will be aware that milk intakes in New Zealand are starting to improve following very poor production during the spring," she said in a commentary.

"The dairy markets however are very closely balanced so it does not take much to tip the balance one way or the other with small changes in supply volumes," she said.

The other key product for New Zealand producers - skim milk powder - fell in price by 3.8% to US$2,574 a tonne.

Eric Meyer, president of Chicago-based risk management, advisory and brokerage firm HighGroundDairy, said there was a "disconnect" between Fonterra's pricing on GDT and what was happening in EU and US, where prices for whole milk and skim milk powder were far weaker.

"We continue to see EU and US skim milk prices plummet while Fonterra's price (on GDT) has held firm," he said.

"I think there is potential for a large discount between northern hemisphere and pricing and what has been sold through GDT," Mr Meyer said.

"It seems that Asian demand has been good enough that they are willing to pay that premium for quality ," he said.

AgriHQ's Ms Kilsby agreed.

"Despite the weak result overnight, the underlying market fundamentals are generally supportive for Oceania-sourced product," Ms Kilsby said.

"We see this (fall) as more of a short-term market reaction to the change in Fonterra's milk forecast than the start of anything more serious," she said.

Among the other products, anhydrous milk fat declined 1.3% to US$5,693 a tonne while butter edged up by 0.2% higher to US$4,598 a tonne, both better than expectations and reflecting continued optimism in the butterfat industry.

Add a Comment