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Demand for whole milk powder ‘strong’ at overnight auction, analyst says


Demand for whole milk powder remained strong at the global dairy trade auction overnight, boding well for dairy farmers and prompting analysts to upgrade their forecasts for next season.

The global dairy trade price index slipped 0.1 per cent from the previous auction a fortnight ago. Prices for whole milk powder, which has the most impact on what farmers are paid, gained 0.4 per cent to an average US$4097 (NZ$5713) a tonne.

Whole milk powder prices are 51 per cent higher than at the same time last year, largely driven by China where a wealthier population and an increased focus on health and wellbeing after the Covid-19 pandemic is stoking demand for better nutrition.

“Whole milk powder demand remains strong, with this auction seeing North Asian buyers back in force, taking back their usual positions as the major buyer,” said NZX analyst Stu Davison.

”After the last auction, where we saw other regions take more than usual, it’s obvious that the demand is still there globally.”

At the latest auction, 99 per cent of the whole milk powder on offer was sold, he said.

Prices for skim milk powder were unchanged, while cheddar gained. Prices for butter, anhydrous milkfat and lactose fell.

Davison said he wasn’t surprised that both of the cream group products fell, given the extra volume of butter on offer and the price gains seen for both fats over the last six months.

Fonterra Cooperative Group has indicated it is producing more butter to benefit from improved returns relative to other products.

Dairy products are the country’s largest commodity export and Fonterra estimated milk payments to its 10,000 farmer suppliers for this season would contribute about $11.5 billion to the economy.

“Overall, the prices achieved at last night’s event still bode extremely well for export returns and farmgate returns,” said ANZ agriculture economist Susan Kilsby.

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. That’s up from $7.14 per kgMS last season.

For this season, ASB is forecasting $7.60 per kgMS, ANZ $7.70 per kgMS, BNZ $7.70 per kgMS, and Westpac $7.90 per kgMS. The futures market closing price on Tuesday was $7.64 per kgMS.

Following the latest auction, ASB raised its milk payment forecast for next season to $7.50 per kgMS from $7.30 per kgMS, noting prices for shipments later in the year were trading at a premium.

“The shape of the contract curve suggests prices maintain momentum heading into next season,” said ASB economist Nat Keall. “An uncertain outlook for Northern Hemisphere production and rising global consumption should keep prices supported over the medium term.”

Westpac also upgraded its forecast for next season to $8 per kgMS, from $7.25 kgMS.

“We expect robust demand to continue,” said Westpac senior agri economist Nathan Penny. “Strong Chinese and South-East Asian demand is underpinning the price strength and we expect this to be ongoing through 2021.

“We now expect global dairy prices to remain stronger for longer,” Penny said.

For next season, BNZ is forecasting a milk price of $7 per kgMS, and ANZ $7.30 per kgMS. The futures market closed on Tuesday at $7.50 per kgMS.

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Source: Stuff


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