It is too early to say that dairy prices have turned a corner yet, despite positive results in the latest global auction, Westpac economists say.
In the latest GlobalDairyTrade auction in the early hours of Wednesday, NZ time, prices lifted for the second consecutive auction overnight and have now, overall nearly recovered to the level they were at before the "terrible" auction in mid-August at which overall prices sagged 7.4%.
In an NZ Dairy Update, Westpac senior agri economist said Nathan Penny said while the positive result in the latest auction is welcome, global dairy prices remain low.
"In annual terms, WMP [Whole Milk Powder] and overall prices are still down by 25% and 24%, respectively. Recall also that WMP prices fell 18% over August. Indeed, WMP prices are still around 10% below the level back at the end of July.
"With that in mind, it’s difficult to judge yet whether prices have turned a corner. To make that call we will need to see further price lifts over October and into November. Indeed, the recent price rises may have more to do with the fact that low prices have brought buyers back to the market rather than any fundamental change or improvement in global dairy demand," Penny said.
Looking ahead, he said the strength or otherwise of New Zealand spring production has the potential to provide fresh direction to prices over coming months.
"At this juncture and given that 2022 spring production was weak, we anticipate some lift in annual terms. However, that is likely to be tempered by the fact that cashflow pressures are likely to mean that farmers’ purchase less feed and other inputs."
At the same time, Penny said he continues to monitor developments in China for signs of a pickup in dairy demand.
"For now, there have been few developments of note. As a result, we continue to expect that demand will not improve until late 2023 at the earliest, but more likely in the new year."
He has maintained his farmgate milk price forecast for the 2023-24 season of $6.75 per kilogram of milk solids.
"In terms of risks to this forecast, we now see them as balanced. On the upside and as well as the better auction results over September, the NZD/USD has weakened recently and is providing an additional boost the milk price.
"On the downside, we see risks that New Zealand spring production is stronger than many in global dairy markets anticipate. For example, Fonterra expects production to fall this season compared to last. In addition, the timing of the recovery in Chinese demand remains highly uncertain. In other words, there’s a lot of water still to go under the bridge this season."
Fonterra's current milk price forecast is in the range of $6 to $7.50, which give a 'midpoint' price of $6.75 - the same as the Westpac pick. Fonterra is set to release annual results on Thursday of this week at which it may give an update on that price, as well as a final price - expected to be about $8.20 - for the season that ended in May 2023. A year ago the co-operative paid an all-time record milk price of $9.30.
Fonterra has said it expects earnings to be "at the top end" of its forecast range of 65-80 cents per share.
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In addition, the timing of the recovery in Chinese demand remains highly uncertain. In other words, there’s a lot of water still to go under the bridge this season."
Will NZ be able to dictate it's trading fate with China? Others are under orders to desist.
They successfully crushed Germany-Russia relations. Now it's time to destroy Germany-China trade. Germany's real enemy is not China or Russia. it's the guys who blew up Nord Stream and now want to blow up the trade pipeline with China. Link
Prices not down on Aussie supermarket shelves:
Supermarket giant Coles has lifted its milk price, further squeezing household budgets.
This week, Coles "reluctantly raised" the price of its own-brand milk by 10 cents a litre to $1.70 for one litre and $3.30 for two litres, "due to ongoing cost increases in the supply chain", a spokesperson said.
The increase means the price has gone up 21 per cent in just over a year, which is a hard pill to swallow for households trying to make ends meet.
Peak body Dairy Australia acknowledged the jump in its latest report on the state of the industry, noting that retail dairy prices had "increased at the fastest rate compared to all other food groups"
https://www.abc.net.au/news/rural/2023-09-20/milk-price-increase-coles-…
The Australian dairy industry marches to it's own beat.
The bulk of milk produced in Australia is consumed locally with a relatively small export share seemingly justifying a price that differs from the rest of the world.
The premium in Aus over NZ of over $2 kg ms is surprising considering how much control the major Aus supermarkets have on their supply chains and retail space including the infamous $1 house brand wars.
The consequence has been rapidly shrinking dairy farmer numbers as farmers went broke. retired or just had a gutsful and went to beef and manufacturers are now having to compete vigorously to retain supply to keep their stainless steel operating.
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