Fonterra milk price remains steady as prices hold at GDT

Fonterra milk tankers at the co-operative's specialty powder and casein manufacturing plant at Longburn, near Palmerston North. Picture/NZ Herald.

Fonterra's farmgate milk price forecast for 2017/18 looks likely to remain broadly intact after prices edged down by just 0.5 per cent at this morning's GlobalDairyTrade auction.

Whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price, rose by 0.3 per cent to US$3246 a tonne - the fourth gain in a row since falling to US$2755 a tonne in December.

Price gains for whole milk powder so far this year are expected to reinforce Fonterra's current forecast of $6.40/kg of milksolids.

As end of the season approaches on May 30, and with 80 per cent of Fonterra's product already sold, there appeared little likelihood of a big revision to the forecast, economists said.

Among the other Fonterra reference products, skim milk powder prices fell by 3.0 per cent to US$1832 a tonne, butter firmed by 1.1 per cent to US$5334/tonne and anhydrous milk fat dropped by 1.9 per cent to US$6458/tonne. No buttermilk powder was offered.

Futures market pricing had suggested prices at this morning's auction would be flat.

The average auction price was US$3623 a tonne.

Fonterra has said that it expects milk production to fall by 3 per cent over this season, compared with last, due to drought in parts of the country.

Economists have questioned whether the drop will be as big as Fonterra estimates, given the return of rain to many parts of the country.

ASB bank expects News Zealand production to improve on the back of the increased rainfall and that, in turn, would put downward pressure on prices. For the moment, is sticking with its $6.50/kg forecast.

ASB said Fonterra's forecast of a 3 per cent fall in production this season was overly pessimistic.

ANZ economists said it appeared that Fonterra's $6.40 per kg forecast looked likely to remain.

"Therefore, in many ways, attention is turning to how the 2018/19 season could go," the bank said.

"We are a little mindful of prices easing further into May as the local production season has a strong finish, but still expect a US$2800-3200/tonne range for whole milk powder to hold," it said.

"But ultimately it is the recent strength in the NZ dollar that could prove to be the real party pooper," ANZ economists said in a commentary.

Latest data from the Dairy Companies Association of NZ (DCANZ) showed January 2018 NZ milk production fell by 7.4 per cent on a milksolids basis, compared with the January 2017 figure. Season-to-date NZ milk production dropped by just 0.9 per cent.

The DCANZ data For the 12 months ot the end of January, production was up 0.8 per cent.