ANZ has raised its expectation for Fonterra’s farmgate milk price this season as dairy commodity prices push higher.
The bank’s agricultural economist Susan Kilsby on Thursday raised her forecast by 50 cents to $8.20 per kilogram of milk solids.
“Dairy commodity prices have trended higher as the season has progressed. Often prices weaken at this time of the season, but this season prices have instead firmed,” Kilsby said.
“While we don’t see further upside in these prices in the immediate term, they are now at a level that delivers a healthy return back to our farmers.”
Economists have mostly been lifting their expectations for Fonterra’s milk payments over the last month as constrained milk volumes underpin high global prices, while the New Zealand dollar remains in check.
Most are now forecasting payments above the $8 per kgMS mid-point of Fonterra’s milk price guidance of $7.25 per kgMS to $8.75 per kgMS.
Westpac on Wednesday increased its forecast to $8.50 per kgMS, which would exceed Fonterra’s previous record of $8.40 per kgMS. Last month, ASB lifted its forecast to $8.20 per kgMS and BNZ raised its forecast to $8.30 per kgMS.
By contrast, Rabobank last month lowered its forecast to $7.80 per kgMS, citing high stock levels in China. Import volumes into China needed to slow or fall to rebalance the market, the bank said.
ANZ’s Kilsby said dairy commodity markets were relatively balanced at present, keeping prices stable.
However she said global dairy demand was fragile as Asian economies suffered from the pandemic and contagion spreading from an impending slowdown in China’s property development sector.
Kilsby noted global milk supplies were only expanding slowly, and high grain costs were constraining production in the Northern Hemisphere.
“Whatever supply growth that is occurring is generally being absorbed within the country of production, meaning we are not seeing an increase in the volume of dairy product on offer in the global markets,” she said. “This situation is unlikely to change anytime soon.”
The New Zealand dollar had not appreciated as quickly as ANZ expected, and much of Fonterra’s currency requirements would now be hedged for the current season, reducing the risk of a stronger New Zealand dollar significantly eroding farmgate returns, she said.