Dairy prices steady at GDT, Westpac lifts forecast to $8/kg

Dairy prices were mostly steady at this morning's Global Dairy Trade auction. Photo / NZ Herald

Westpac has lifted its current season farmgate milk price forecast by 75c to $8.00 kg, following on from a steady Global Dairy Trade auction.

The bank's senior agri economist, Nathan Penny, also expects global dairy prices to remain stronger for longer in the current dairy price cycle.

At the same time, the bank has stuck with its similarly healthy $7.90/kg forecast for 2020/21.

"We expect high grain prices, environmental constraints and competition for land and water from other industries to rein in the usual global dairy supply response to very strong global demand," Penny said in a commentary.

An $8.00 milk price would be the second highest in Fonterra's history.

The highest - $8.40 - was paid in 2013/14.

At this morning's auction, the GDT price index eased by 0.1 per cent from the last auction. The average price came to US$4110 a tonne.

Whole milk powder prices, which have the greatest bearing on Fonterra's milk price, gained 0.4 per cent to US$4097 a tonne.

Another "reference" product, skim milk powder, traded at US$3365 a tonne, unchanged.

Anhydrous milk fat prices eased by 3.3 per cent to US$6003 a tonne.

Penny said the GDT result further consolidated the big price gains made over March.

Wholemilk powder prices are now up 28 per cent over 2021 and 50 per cent higher than as at the same last year.

"Compared to our previous forecasts set back in March, we now expect dairy prices to start the 2021/22 season firmly on the front foot," Penny said.

For example, in milk price terms, the auction result overnight, using the auction results and today's exchange rate, equated to a milk price of over $9.00/kg, he said.

Since March, Westpac had lowered its NZD/USD forecasts by around two cents over the season, adding further upward impetus to its milk price forecast in NZ dollar terms.

In March, Fonterra lifted its 2020/21 forecast farmgate milk price range to $7.30-$7.90/kg, up from a previous forecast of $6.90-$7.50/kg.

The midpoint of the range, off which farmers are paid, increased to $7.60/kg.

Fonterra was pleased with the result, even though it was "flat," the co-op's chief executive Miles Hurrell told The Country's Jamie Mackay.

"We see it as a good result. It goes a long way to support our forecast that we have out there – so our farmers should be pleased with that."

Some commentators predicted a lift in the GDT due to increased demand from China, South America and the Middle East.

However, Hurrell wasn't surprised to see a steady result.

Some buyers started to question whether they could make a profit when prices were above US$3500-$4000, he said.

Listen below:

He believed African and Middle East buyers would "fall back a little bit" as a result.

However, the China market was still going "gangbusters", Hurrell said.

It was too early to comment on next season's payout, but Fonterra was watching the market closely, Hurrell said.

"I'm not sure where we'll start to look for next season, but all things are pointing to a positive story at the moment."