NZ milk production jumps 2.9% in peak month

Fonterra's Whareroa milk processing plant at Hawera. Picture/NZ Herald

New Zealand dairy production kicked higher in the peak month of October, which may have implications for next week's GlobalDairyTrade auction.

Dairy Companies Association of NZ (DCANZ) data out this week showed milk production was up 2.9 per cent on a milksolids basis over October, compared with the same month last year.

The data showed season-to-date production was up by 1.1 per cent and by 0.8 per cent for the 12 months to October, also on a milksolids basis.

ASB Rural Economist Nathan Penny said the good news for prices was that production was likely to tail off from here on as the season starts to wind down, but that the shift higher over the month of October was likely to put dairy prices under downward pressure, particularly as European production looked to be increasing as well.

Penny has a $6.75 per kg forecast for Fonterra this season but put it under review following the last auction, when prices fell sharply.

ANZ rural Con Williams said the market's focus was on offshore markets, particularly as European supply expands quite aggressively.

"Technically, it's difficult to see whole milk powder punching too much lower from where it got to at he last auction," he said.

OM Financial's director financial markets Nigel Brunel said increased production could weigh on the market.

Last year's season as characterised by a long "shoulder" - strong production following the October peak.

"Those (DCANZ) production numbers won't help, and if we get some fine weather and a longer shoulder, then it definitely won't help (prices)," he said.

Fonterra's milk price forecast for the current season has been under downward pressure after product prices fell by 3.5 per cent at the last GlobalDairyTrade auction early this month.

Whole milk powder prices, the most important component of the forecast, fell by 5.5 per cent to US$2852/tonne - the third decline in a row - at the sale.

Fonterra's next update is due in December, although the board may choose to revise the forecast earlier.

Most bank forecasts are in the $6.25-$6.50 range.

Fonterra's current $6.75/kg forecast for this season compares with $6.12/kg of milksolids in 2016/17 season.

Farmgate milk prices slumped to $3.90/kg and $4.40kg - in each of the preceding seasons.

The next GDT auction is due on Wednesday.