ANZ Bank, New Zealand's biggest rural lender, has revised down its milk price forecast for next season by 70c a kg to $5.75/kg based on changing consumption patterns arising from Covid-19 related shutdowns around the world.

The bank's new forecast comes ahead of tomorrow's Global Dairy Trade auction, which futures market pricing suggest is going to be weak.

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ANZ agriculture economist Susan Kilsby said global dairy commodity markets are being hit by changes in consumption patterns related to cafes and restaurants being shut down.

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The bank has kept its forecast for the current season, which ends on May 31, at $7.15/kg.

ANZ's downward revision for next season was driven by a significant deterioration in economic conditions in most parts of the globe, more specifically the recent sharp fall in dairy commodity prices in the United States and European markets, Kilsby said.

"The reduction in demand for dairy products from the food service sector has resulted in growing surpluses of milk, especially in regions where a large share of dining normally occurs outside of the home," she said in a report.

"Thus far, the prices New Zealand is receiving for its dairy commodities have held up much better than the prices of similar goods traded within the US and Europe.

"But it's only a matter of time before prices for New Zealand sourced dairy products also come under pressure," she said.

Measures to protect domestic production mean the US and European markets often trade at a premium to products traded outside of these regions and these premiums can persist for substantial periods, she said.

"However, price premiums for New Zealand products tend to last for only a few months. This suggests that returns for New Zealand dairy commodities will not be able to defy gravity for too much longer," Kilsby said.

Fonterra is due to issue its forecast for next season towards the end of this month. Photo / File
Fonterra is due to issue its forecast for next season towards the end of this month. Photo / File

ANZ's revised forecast comes amid futures market weakness ahead of tomorrow's auction.

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"The futures market is looking at a 2 to 3 per cent decline, but I would not be surprised if there is a small 'up' because it's done it before," Nigel Brunel, director of institutional commodities at OM Financial, said.

As always, much would depend on the strength of buying support from China, he added.

At the last GDT sale on April 22, whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price, fell by 3.9 per cent to US$2707/tonne - back to where they were in January 2019.

Most Economists have revised down their 2020/21 milk price expectations due to the disruption caused by the Covid-19 pandemic.

Rabobank is predicting just $5.60 per kg of milksolids for the upcoming season.

Only minor adjustments are expected to be made to Fonterra's $7.00 to $7.60/kg forecast for the current season, which ends on May 31.

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Fonterra will issue its 2020/21 forecast later this month.