The commodity price results were good prospects for an opening farm gate milk price for the new season in the mid-$7/kg milksolids range, analysts say.
The NZX dairy derivatives market for milk price futures is anticipating $7.84 for next season, higher than the current contract traded price for this season of $7.73.
However, the futures market also expected commodity prices to increase in recent GDT events, something that has failed to come true.
For the past two months (four auctions) the GDT index movements have been, in order, plus 0.3%, minus 0.1%, minus 0.7% and minus 0.2%.
Notwithstanding a 0.2% fall in the latest auction, whole milk powder (WMP) prices have stayed above US$4000 per tonne, the major determinant of a milk price over $7.
Skim milk powder (SMP) rose 0.7% and now sits at $3447, having gained steadily since February and during most of the past 12 months, during which it has risen 35%
Westpac’s senior agri-economist Nathan Penny says strong prices over recent auctions should cause Fonterra to lift and tighten its milk price forecast for the current season closer to $7.90.
He believed it would open the new season with a mid-point forecast between $7 and $7.60.
If the mid-point is $7.25, then he expected Fonterra to quote a range of $6.75 to $7.75, to reduce the risk of having to lower its forecast later in the season.
Penny says the sideways trend of the past few auctions meant that commodity prices remained at very healthy levels; for example, WMP up 54% over the past 12 months.
NZX dairy analyst Stu Davison also says the sideways trend was evidence of a market with robust demand.
“Buyers are happy to pay more than $4000 for WMP and there seems to be no stopping that demand at this point in time,” Davison said.
“The price point has been thoroughly tested by Fonterra putting added volumes on the GDT platform, with the consensus that demand is still firm.”
Jarden head of derivatives Mike McIntyre says the futures market had expected increases in the GDT prices in recent auctions, only to be proved wrong.
“Those buying on the physical market are not necessarily participating in futures,” McIntyre said.
“GDT is a much bigger market and there isn’t a perfect tie-up with the derivatives market.”
He says the end of the NZ dairy season for milk production was much stronger this year compared with two previous years.
“So seeing prices up at these levels without supply constraints, sets us up nicely for the new season,” he said.
Chinese participation in the milk powders markets had continued right through into our autumn, which meant bigger consumption in China and a strong support under GDT prices.
BNZ senior economist Doug Steel has forecast the 2022 milk price at $7.80, adding that Fonterra could open with a prediction higher than $7, which would be a record opening price.