Milk price forecasts go up as demand rises

Dairy prices were a ‘‘mixed bag’’ in the first GlobalDairyTrade auction for the new season. Photo...
Photo: Getty Images
Economists have bumped up their milk price forecasts for the 2020-21 season on the back of better-than-expected global dairy demand.

Westpac has lifted its forecast from $6.50 to $7 while BNZ has nudged it up from $6.50 to $6.80. ASB’s forecast remains at $6.75.

The overall index lifted 0.4% in this week’s GlobalDairyTrade auction, the third consecutive rise, and the whole milk powder index was up 0.3%. There was a steep fall in the lactose price index.

In its latest Dairy Update, Westpac senior agri-economist Nathan Penny said the Chinese economy had rebounded strongly post-Covid and it was on track to post modest growth over 2020, the only major global economy likely to do so. Economies in other key dairy markets in Asia were also faring better than expected.

New Zealand agricultural exports, including dairy, had proved more resilient than was expected earlier in the year. The bank now expected global dairy prices to hold at or around current levels over the remainder of the season.

Risks around its forecast were balanced; New Zealand production had started on the front foot, but that was balanced by the developing La Nina weather pattern and the prospect of dry weather later in the season.

Any further rebound in dairy demand could be tempered by high stocks in some markets. Covid-19 uncertainties were ongoing "and developments on this front still have the ability to surprise", he said.

BNZ senior economist Doug Steel said the bank’s new forecast could be considered somewhat cautious.

"On our calculations, if current product prices and currency levels were to be maintained through the remainder of the season, it would result in a milk price of around the $7 mark. If prices hold, or push a touch higher, it is possible that this season’s milk price challenges last season’s $7.14, depending on currency developments."

However, there also remained a lot of uncertainty around the way ahead for the global economy and, as such, the potential for material shifts in dairy demand.

RaboResearch senior dairy analyst Emma Higgins said the latest GDT results were impressive in the face of robust production volumes from around the globe.

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