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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 prices.
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 report said.
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.