Another disappointing global dairy auction outcome keeps the pressure on farmers; ANZ economist says dairy prices remain ‘precariously placed’ – eDairyNews
Countries New Zealand |7 julio, 2016

trade | Another disappointing global dairy auction outcome keeps the pressure on farmers; ANZ economist says dairy prices remain ‘precariously placed’

ANZ agri economist Con Williams says global dairy prices remain «precariously placed», meaning that Fonterra’s current milk price forecast for farmers of $4.25 per kilogram of milk solids «looks optimistic at this stage». By David Hargreaves

His comments followed a disappointing outcome overnight in the latest GlobalDairyTrade auction, in which prices as measured by the GDT Index dropped 0.4%.

The key Wholemik Powder average price, at US$2062 per metric tonne, was down 2.6% on the US$2118 recorded at the previous auction. WMP prices have fallen 8.4% across the last three auctions and are now some 10.5% lower in American dollar terms than they were in December.

However, the strength of the kiwi dollar this year has also gone against farmers. In NZ dollar terms the WMP prices are actually over 15% lower than at the end of last year.

ANZ’s Williams said, that while the «headline» dairy auction result held up in the latest auction, this masked «troubling softness» elsewhere.

He pointed to the fact that short-term contracts, those for product to be delivered next month, were all up substantially, including a 15% rise for the August contract WMP.

Williams said this kind of near-term price support would suggest demand from a small number of buyers for short-term requirements.

«It was a different story further out the curve where the likes of WMP prices dropped 4-6% across the other contract periods.

«All-up prices remain precariously placed and combined with NZD resilience this means Fonterra’s starting milk price forecast in May of $4.25/kg MS looks optimistic at this stage. If recent auction prices were to persist then the milk price will see no improvement from the season that has just finished.»

ASB economists have been in relative terms ‘bullish’ about the prospects for dairy prices this year – but even they now are seeing downside risks.

Rural economist for ASB Nathan Penny said the economists were sticking with their 2016/17 milk price forecast of $6.00/kg for now.

«However, we note that any further temporary setbacks to prices or alternatively the absence of an improvement in prices over coming months will make our forecast increasingly difficult to maintain,» he said.

«…Our milk price forecast assumes dairy prices rise over 2016. So if dairy buyers continue to sit on their hands and wait for the Brexit dust to settle over coming months, achieving our milk price forecast becomes increasingly difficult with each passing dairy auction. Similarly, any further temporary dairy price setbacks will have the same effect. For now though, we stick with our 2016/17 forecast, but highlight the growing downside risks.»

Fonterra made its current price forecast on May 26, at which time it also re-affirmed an expected price of just $3.90 for the recently completed season. Farmers are looking at their third consecutive season of potentially below break-even prices. See here for the full dairy payout history.

AgriHQ dairy analyst Susan Kilsby pointed out that there had been 16,250t of WMP available at last night’s auction – which was some 56% more than at the previous auction.

«The drop in the WMP price indicates that demand is not currently strong enough to absorb the higher volumes of product being offered without some price correction occurring,» she said.

«Volumes offered last night were typical levels for this time of the season. Offer volumes are forecast to continue to rise in the coming months, peaking in September.»

Kilsby said global demand for milk powder remained subdued as most buyers had sufficient stocks on hand to meet their immediate requirements, «therefore have little urgency to buy right now”.

Source: Interest
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