Pressure goes on Fonterra’s milk price forecast after strong auction

Demand from China is putting upward pressure on Fonterra's milk price forecast. Photo / NZME

Higher Global Dairy Trade (GDT) auction prices, boosted by demand from China, are already putting pressure on Fonterra’s milk price forecast less than a fortnight after its latest upgrade.

On November 10, the co-op raised the midpoint of the 2024/25 season forecast farmgate milk price from $9.00 per kilo/milksolid (kgMS) to $9.50 per kgMS.

Fonterra also narrowed the forecast range from $8.25 - $9.75 per kg to $9.00 - $10.00 per kg.

This morning’s GDT auction saw prices continue their recent trajectory, the overall index lifting 1.9% to settle at an average price of US$4,089 ($6910) a tonne.

The GDT index is at its highest point since July 2022.

Overall, both milk powders and fats rose, while cheese prices fell.

Whole milk powder prices, which have the greatest bearing on Fonterra’s milk price, jumped by 3.25% to US$3,826 ($6465) a tonne.

Skim milk powder, another important reference product, rose by 0.9% to US$2882 ($4870) a tonne.

Running against the trend was cheddar, which fell by 3.1% to US$4834 ($8169) a tonne, and mozzarella, which fell 6.6% to US$4315 ($7292) per tonne.

Rising export commodity prices are one of the good news stories for the New Zealand economy, ASB Bank said.

Export commodity prices are 15% higher in US dollar terms on a year ago, according to the ASB Commodities Index, with the low NZ dollar ensuring more of the gains stayed with producers.

ASB’s chief economist Nick Tuffley said the bank had upgraded its forecast to $9.75/kg.

He said higher milk prices, coupled with strong production, would mean an extra $4 billion going into the economy compared with last season.

“It’s definitely a very, very helpful outcome at this time, and now it looks like growing conditions are going to be pretty good as well, with production up about 6.5% over last season,” Tuffley said.

“So you have got added volume and the likelihood of a pretty good price coming through,” he said.

“On both fronts, we could end up with an extra $4b added to incomes this season, compared to last season,” Tuffley said.

Anna Palairet, Fonterra’s chief operating officer, told The Country radio show that the auction had given the co-op confidence about its current milk price forecast.

She said the higher prices appeared to be driven from China, where she said “green shoots” were emerging after a lull in demand.

Westpac today raised its forecast to $10/kg from $9.00/kg.

“This would be a new record milk price in dollar terms, though not after adjusting for inflation or the trend increase in farmers’ costs,” the bank said.

“Chinese buyers are facing a substantial challenge to rebuild their stocks of milk powders in particular,” Westpac said.

“This is providing a boost to dairy prices in the near term, although we expect prices to fall back again once this process is complete,” it said.

BNZ last week issued a forecast of $9.75/kg milk farmgate milk price for 2024/25, adding $10/kg was a possibility.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.

iffley said.