Fonterra has maintained its forecast range of $5.90-6.90/kg milksolids for the current season, keeping its advance rate at the midpoint of $6.40/kg MS.
It released its updated forecast on the eve of the latest Global DairyTrade (GDT) auction, which saw average prices fall 1% to US$2955/tonne.
Fonterra chair John Monaghan said the global market was finely balanced with both demand and supply increasing but it has the potential to change.
“There is good demand in the market at this stage of the season, however, the forecast economic slowdown is likely to increase global unemployment and reduce consumer demand,” he said.
“The potential for additional waves of covid-19 is also impacting the confidence of some of our foodservice customers.”
He said global milk production had bounced back stronger than expected and volumes in the EU and USA were anticipated to be up on last year.
“At this early stage of the season, any movement in the market can have a significant impact on our milk price. For that reason, we recommend caution with your on-farm financial decisions,” he said.
He said the final price for the 2019-20 season will be confirmed when Fonterra releases its annual result on September 18.
Whole milk powder (WMP) prices fell 2% from the last event with prices settling at USD2884/t, while butter fell 1.2% to land at US$3,334/t.
Bucking the trend was skim milk powder (SMP), which lifted 1.8% to sit at US$2663/t. There was a reduction in SMP volumes on offer for the latest sale, which helped bolster its price.
Rabobank analyst Emma Higgins said Fonterra had also pulled back on the SMP volumes available on the GDT platform in the coming 12 months due to demand for SMP off-GDT.
The milking season was about to ramp up as peak milk fast approached, Higgins said.
“A relatively mild winter has been helpful for setting a good platform for the new season’s milk production – despite the snow fall across South Island over the last couple of days,” she said.
Westpac senior agri-economist Nathan Penny said the downward trend of the auctions showed that milk fat’s price premium over protein had been trimmed due to the effect covid-19 was having on the food service industry.
“Covid restrictions coupled with a general reluctance of people to eat out has reduced demand for these products,” he said in the bank’s fortnightly dairy update.
“Looking at the numbers, the pattern is clear, anhydrous milk fat prices have dipped (over 20%) post-covid and have shown no sign of rebounding.”
AMF prices are at its lowest level since mid-2016, when butter and other milk fats began their renaissance.
Penny says that along with the recovery of SMP suggested the surge in July was largely an aberration.
“The July rebound was not a signal that dairy markets were returning to normal,” he said.
“Indeed, over the coming months, we will look to milk fat prices for a more definitive sign that dairy prices have turned a corner.
“At the same time, while overall dairy prices are down on year ago levels, we expect that the worst of the covid impact is over.
“On that basis, we are sticking with our 2020/21 milk price forecast of $6.50/kg.”