“With Chinese consumers now largely free to move about and return to restaurants, cafes and bakeries, we anticipated that products like butter would benefit most from looser Covid restrictions,” Penny said.
Over the coming months, Penny expects prices to gain further momentum as Chinese demand continues to rebound.
Westpac has forecast the Chinese economy to grow by 6 per cent over calendar 2023 from 3.5 per cent in 2022 and for strengthening household spending to be a key driver of economic growth over the year.
“While it’s early days in the demand recovery, the price rise overnight is consistent with our 2022/23 milk price forecast of $8.75/kg,” Penny said.
Dairy giant Fonterra has forecast a 2022/23 milk price of $8.50 to $9.50 per kg of milksolids, with a midpoint of $9.00/kg.
NZX dairy insights manager Stuart Davison said there had been a notable lifting in the forward sales curve for WMP at the auction.
“Significant price gains across each contract period highlights that buyers were chasing product across the board, with the premium squarely focused on later dated products, something that bodes well for the currently contested view that WMP prices are expected to increase on the way into the second half of 2023,” Davison said in a commentary.
“North Asian participation also bodes well for the same expectation, with North Asian buyers taking nearly two-thirds of the total WMP volume sold; 15 per cent more of the total than the previous event and 5 per cent more than at the equivalent event last year,” Davison said.
Davison said the auction result “hints” that prices are expected to keep appreciating on the way through the tail end of the New Zealand dairy season and will hit the start of the new season stronger than today’s prices.
He said he was leaning towards a more bullish stance than this time two months ago.
“We need a few more solid signals from the market to confidently point in the upwards direction, but the signals are starting to accumulate,” Davison said.
“As always, the next GDT result is the defining factor of truth in this market, only then will we know if this was a ‘dead cat bounce’ or a post-bottom market shifting higher.”
ANZ has revised down its farmgate milk price forecast for the 2022-23 season by 25c to $8.50/kg milksolids. Its forecast for the 2023-24 season has also been revised down 25c to $8.75/kg.
The bank said the New Zealand dollar had appreciated more quickly than forecast, and that it now expects it to reach US66c by September 2023, from US63c today.
”Dairy commodities are poised to rebound, but the lower prices achieved in recent months has put downward pressure on farmgate returns,” ANZ economist Susan Kilsby said.
She noted milk price futures have also retreated quite sharply. The milk price futures contract for the 2022-23 season peaked at $10.30 in September but more recently this contract has traded at or near $8.50/kg MS.
”Despite the lift at this week’s auction, recent movements in both dairy commodity prices and the exchange rate have been largely unfavourable for farmgate prices,” she said.
”While we expect dairy commodity prices to gradually recover, we also expect the NZD to appreciate further.”
