Dairy prices edged up in the overnight global auction on higher than normal volumes, suggesting demand remains strong and Fonterra has scope to increase its milk price to farmers.
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STUFF The global dairy trade price index gained 0.3 per cent from the previous auction a fortnight ago. (File photo).

The global dairy trade price index gained 0.3 per cent from the previous auction a fortnight ago. The price of whole milk powder, which has the most impact on what farmers are paid, was unchanged at an average US$4085 (NZ$5780) a tonne. Volumes were higher than normal for this time of year.

Whole milk powder prices jumped 21 per cent at the first fortnightly auction in March then pulled back 6.2 per cent at the following auction. Prices at the latest auction are 44 per cent higher than at the same time last year amid a surge in demand from China driven by a desire for better nutrition from a wealthier population and increased health awareness after Covid-19.

“The big overall rise from March has been cemented,” said Westpac senior agri economist Nathan Penny. “Despite extra volumes than normal for April, prices have held at this very high level, so that’s good news and indicative of very strong demand.

“It’s a sweet spot for dairy at the moment, and that will continue into the new season as well.”

Penny expects Fonterra to raise its forecast milk price for its 10,000 farmer suppliers.

Last month, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90 per kilogram of milk solids, with a mid-point of $7.60 per kgMS.

Penny said prices on the global auction platform were consistent with his forecast for a Fonterra payout of $7.90 per kgMS for this season.

“I expect them to narrow it a lot closer somewhere up at the top of their range before long,” Penny said. “This is all adding up to be a pretty good season all around, with good production, no real drought of any note anywhere and an excellent price, so the regions and farmers in general are going to be going really well off the back of this bumper season.”

Penny noted prices had increased for products such as butter and milk fat, reflecting a pickup in demand from bakeries and restaurants as economies in Asia recover from Covid-19 and return to more normal settings. Five of seven products on the auction platform increased in price.

He expected demand to remain strong without a significant increase in global supply, underpinning prices in the future.

Penny expects Fonterra to pay $7.25 per kgMS next season, and said there was “upside risk” to his forecast given the recent surge in prices at auction and a fall in the value of the New Zealand dollar.

Dairy products are the country’s largest commodity export and Fonterra estimates its milk payments for this season would contribute about $11.5 billion to the economy.

Dairy products and, in particular, grass-fed products are performing strongly post-covid in overseas markets.

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