Westpac lifts NZ milk price forecast as Covid-19 concerns ease

Westpac senior agri economist Nathan Penny. Photo / Supplied

Westpac has lifted its 2020/21 farmgate milk price forecast by 20 cents to $6.50/kg in response to steady Global Dairy Trade auction prices.

The bank said the impact of Covid-19 on global dairy prices had not been as severe as first feared, but that prices may weaken later in the year.

Global dairy prices have stabilised and have begun to recover from Covid-driven price falls earlier in the year, Westpac senior agri economist Nathan Penny said.

Wholemilk (WMP) powder prices were effectively flat over May, while June prices have lifted 4.4 per cent.

At one stage, WMP prices had slipped by around 15 per cent, but dairy markets have calmed and begun to recover.

"This recovery follows the loosening of lockdown restrictions in key markets such as China and South-East Asia, with a subsequent improvement, albeit modest, in dairy demand and in turn prices," Penny said in a report.

Penny still expects that global dairy prices to soften as the global recession weighs on global dairy demand later in the year.

"Indeed, we have factored in for global dairy prices to weaken over the peak New Zealand production months as the extra dairy volumes combine with softening global demand," he said.

Global Dairy Trade prices ticked higher overnight for the second consecutive auction for the season.

Wholemilk powder prices lifted 2.2 per cent, while skim milk powder led the gains, rising 3.1 per cent. Overall, prices firmed by 1.9 per cent.

In response, NZX Milk price futures firmed to $6.42/kg from $6.25 just before this morning's auction.

That compares with Dairy NZ's estimate of breakeven for this season of $5.80 to $5.90/kg.

Dairy NZ said that for most farmers, a breakeven under $5.75/kg was achievable with careful planning.

It said there are many things that could influence the milk price over the next six to 12 months, and emphasised the importance of farmers reviewing their costs.

Fonterra's latest forecast is in a wide $5.40 to $6.90 range, down from last season's forecast range of $7.10 to $7.30.