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The overall index was up 0.1% this week, while whole milk powder was up 2.1% and skim milk powder was down 0.5%. Butter milk powder prices recovered from an earlier dip and were up 9.4% while the butter index was down 4.4%, cheddar was down 5.3% and the anhydrous milk fat index was down 2.9%.
While any lift in whole milk powder prices was encouraging, the stronger New Zealand dollar over recent weeks was an ‘‘offsetting negative’’, ASB senior economist Chris Tennent-Brown said.
The bank had been noting for a while the possibility that the milk price could dip below $6 a kg, regularly suggesting farmers prepare for that contingency for the 2020-21 season.
United States-based RaboResearch dairy analyst Tom Bailey said conditions in China generally continued to improve economically which typically led to increased demand for dairy.
However, Rabobank estimated significant domestic stockpiles of milk powder remained in China due to spray drying in February resulting from supply chain constraints in processing fresh dairy products at the time. Those stocks would probably pose a demand risk for imported powders later in the year, Mr Bailey said.
The auction marked a turning point in offer volumes that were 31% higher than the previous event. That demonstrated robustness in demand, particularly for whole milk powder, as markets reopened and supply chains were refilled.
‘‘However, while distributors might be refilling their pipelines, true consumer-level demand remains opaque around the globe,’’ Mr Bailey said.
Rabobank had calculated that, historically, for every 1% increase in the US unemployment rate, domestic dairy demand fell by 0.27%. Given the job losses experienced throughout the world, a similar relationship might apply elsewhere, resulting in weakened consumer-level demand through 2020, he said.
Westpac’s head of New Zealand strategy, Imre Speizer, said production remained a drag on prices, with the northern hemisphere and South America remaining above the previous year’s levels.
Westpac’s forecast of Fonterra’s farmgate milk price for the new season of $6.30 assumed further weakness in global dairy prices, Mr Speizer said.
The futures market was broadly in agreement, pricing it at $6.20 currently, slightly more upbeat than the $6.13 two weeks ago, and $5.93 at the end of April. Fonterra’s opening forecast, announced last month, was a range of $5.40-$6.90, which had a midpoint of $6.15.
■Levy-paying dairy farmers have voted to continue the sector’s milksolids levy. The one in six-year milksolids levy vote closed on May 30, with provisional results showing 57% of the 11,747 levy-paying dairy farmers voted. Of those who voted, 69% voted ‘‘yes’’ to continuing the levy.
DairyNZ, the industry-good body for dairy farmers, is funded by the milksolids levy.
Chairman Jim van der Poel said the vote provided DairyNZ with confidence for the future.
Levy-paying farmers contributed 3.6c per kilogram of milksolids (kgMS) produced.
The levy rate is reviewed by the DairyNZ board each year. It has remained at 3.6c/kgMS since 2008 and DairyNZ has confirmed it would remain at that level for the 2020-21 season.