Dairy prices rose at the global auction overnight, boding well for farmgate milk price payments to farmers this season.
The global dairy trade price index increased 2.2 per cent at the fortnightly auction. The average price for whole milk powder, which has the most impact on what farmers are paid, lifted 1.5 per cent to an average US$3803 (NZ$5305) a tonne, which is 25 per cent higher than at the same time last year.
Fonterra has been reducing the amount of whole milk powder it offers on the auction platform, saying it has strong contract demand and expectations for flat milk supply this season will limit its ability to increase production.
“With strong price gains across each contract period of each commodity, there is now little doubt that buyers are aware of how tight supply is expected to be, and are willing to pay the premium to secure volumes,” said NZX dairy analyst Stuart Davison. “The market doesn’t expect prices to ease from these price points in a hurry.”
Davison said the auction result will be positively received by farmers, as it supports the farmgate milk price.
“The confidence this result has provided will be appreciated, as farmers continue to deal with ongoing challenges on farm, such as labour shortages, cold and wet weather, along with supply chain issues affecting their businesses,” he said.
“However, I still don’t expect a higher farmgate milk price to entice excess milk production, as margins and on farm capabilities remain tight.”
Fonterra expects to pay farmers
Analysts have noted New Zealand has started this season on the back foot as wet and cold weather dents milk production.
Milk production was also soft elsewhere, with weather impacting European production and Chinese and United States production constrained by high feed costs and limited feed availability.
Davison noted that North Asian buyers returned to their dominant position as the top purchasers at the latest auction.
between $7.25 per kilogram of milk solids to $8.75 per kgMS this season. That’s ahead of its $7.54 per kgMS payment last season.
The mid-point of the forecast would see Fonterra contributing more than $12 billion to the economy.
The co-operative expects global demand for dairy to increase by about 2 per cent per annum out to 2030 and says it may divert some product away from the auction platform in the future, as it focuses on higher value products.