Two banks have raised their farmgate milk price forecasts based on stronger-than-expected demand for New Zealand's biggest export from its biggest customer, China.
Westpac upgraded its farmgate milk price forecast by 50c to $7.00/kg and the Bank of New Zealand lifted its forecast to $6.80 from $6.50/kg, both based on better-than-expected demand.
At $7.00/kg, the milk price would be the third-highest on record, but still short of the highest ever paid of $8.40/kg for the 2013/14 season.
Dairy NZ's break-even estimate is $5.80 to $5.90 a kg, but anything over $7.00/kg puts farmers in a strong position.
The milk price forecast follows a sombre seasonal outlook this week from Beef + Lamb NZ, which said New Zealand's beef and sheepmeat exports will be hit hard in 2020/21, with farm profits expected to fall by 26 per cent due to Covid-19.
The brighter outlook for dairy comes at a time when New Zealand is widely forecast to suffer its worst recession since the Great Depression.
It also follows news this week that China's GDP powered ahead by 4.9 per cent - higher than expected - over the third quarter.
This morning's Global Dairy Trade auction saw key wholemilk powder prices remain over the psychologically important US$3000/tonne level for the second auction in a row.
Westpac senior agri economist Nathan Penny said the Chinese economy had rebounded strongly post Covid-19.
"The Chinese economy is on track to post modest growth over 2020, the only major global economy likely to do so.
"In addition, economies in other key dairy markets in Asia are also faring better than expected," he said.
"More broadly, New Zealand agricultural exports, including dairy, have proved more resilient than we expected earlier in the year," Penny said in a commentary.
Westpac now expects global dairy prices to hold at or around current levels over the remainder of the season, contrasting with its previous view that prices would weaken as the global recession weighed on global dairy demand.
Strong demand had seen prices firm over three consecutive auctions.
"Importantly, this sets up the milk price well for the season as this price strength has coincided with the peak in spring production and similarly high auction volumes," Penny said.
Fonterra this month increased the mid-point of its forecast farmgate milk price range to $6.80 per kgMS, up from $6.40 per kgMS, driven by improved demand out of China.
The co-op left itself plenty of wriggle room by retaining its current plus or minus 50c per kg range, but $6.80 would add $10 billion to regional New Zealand.
BNZ said it agreed with Fonterra's move and said the uncertainty around this season's milk price had eased.
"New Zealand production has started the season on the front foot, but this is balanced by the developing La Niña weather pattern and the prospect of dry weather later in the season," the bank said.
"Also, any further rebound in dairy demand could be tempered by high stocks in some markets," BNZ said.
ASB's milk price forecast remains at $6.75/kg for the 2020/21 season.
"We now believe the downside risks to this forecast have receded, and the risks are, if anything, moving ever so slightly towards the upside after three decent auctions," ASB said.
ANZ kept its forecast unchanged at $6.50/kg.