“By our assumptions, US$3000/t should deliver something around the high $4/kg Mississippi, as opposed to mid $4/kg Mississippi”, Williams said. ‘The current outlook for the dairy markets means it is now unlikely Fonterra will be able to lift its farmgate milk price from its current forecast’.
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Dairy products, the country’s biggest export earner, were up 17.9 per cent. Non-dairy prices fell 2.2 per cent as the strength in the New Zealand dollar caused local prices to fall. “But the proof of the pudding will be in dividends”, he said.
The NZDUSD has moved to session lows on the report.
The benchmark GlobalDairy Trade (GDT) price index fell 7.4 percent to $2,569 at fortnightly auctions held by New Zealand dairy exporter Fonterra late on Tuesday. Price falls were across the board, with butter milk powder dropping by 9.4 per cent to US$1844 a tonne and rennet casein falling by 11.2 per cent to US$5469 a tonne.
Rabobank analyst Emma Higgins said it was a largely unsurprising result. She expected next quarter prices would be US$2500, the following US$3000, and by this time next year prices for whole milk powder would sit at about US$3200/t. The GDT index bounced back slightly in August as slowing supply pushed up prices, offering hope that the dairy market was stabilising.
Recent rise in New Zealand Dollar is however taking its toll. The co-operative is expected to revise its forecast later this month.
While consumers who had been tempted “to lock in pricing at relatively favourable levels… this activity has reportedly quietened in recent weeks as prices have recovery”, a briefing from industry group Dairy Australia said. However Ms Kilsby said there was very flat outlook for dairy commodities through to the end of this season.
“There is ample supply of dairy product available in the global market and buyers generally have plenty of stock on hand so there is little urgency for them to secure additional stock”.
October is a key month for New Zealand milk output, bringing the seasonal peak in milk production.
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Even though milk prices are at or just above break-even cost of production levels this fall, global supply-demand conditions will likely improve by next summer.
