Payout forecasts heed auction rise
ASB and Westpac economists predict that dairy farmers’ milk payout will lift to $5 per kilogram of milk solids for the season.
But Federated Farmers dairy president Andrew Hoggard said he won’t be counting his chickens until they’ve hatched.
‘‘It’s [the overnight price rises] a positive sign, but it’s like waiting for the rain which hasn’t arrived yet. We should plan for what we have in front of us,’’ Hoggard said.
The trade-weighted GDT price index hit a five-year low in December, but has now lifted at the last five fortnightly auctions. After last Tuesday’s auction it is now at its highest level since July.
Hoggard recalled Fonterra chief executive Theo Spierings saying in December that if the price lifted to US$3500 (NZ$4653) a tonne for whole milk powder by March, that a $5.30kg/ms payout would be ‘‘achievable’’. The latest price is US$3366 a tonne.
At the last two global dairy auctions the price of whole milk powder jumped by 35.6 per cent. Whole milk powder is New Zealand’s largest dairy export product.
Fonterra’s present payout forecast is $4.70kg/ms, set in early December.
For the 2015-16 season, the ASB is predicting a 50c increase in its own prediction, from $6 to $6.50 kg/ms.
Whole milk powder performed strongly at last Tuesday’s auction, up 13.7 per cent, while cheddar prices jumped 16.8 per cent.
All categories saw price increases, with anhydrous milk fat up 6.4 per cent, skim milk powder up 5.7 per cent, butter milk powder up 1.9 per cent, rennet casein up 1.2 per cent, and butter up 1.1 per cent.
Despite increased prices, volumes continued to fall with 22,957 tonnes sold, down sharply from 28,705 tonnes at the previous auction.
Economist Nathan Penny said global dairy markets remained very sensitive to changes in New Zealand milk supply.
He said the rise in prices came at the cost of the drought, and meant production would not increase this season, as had been earlier predicted.
Auction volumes had fallen 27 per cent from two auctions ago, and Fonterra has predicted a lower forecast supply of 20 per cent for the next 12 months.
Westpac economist Michael Gordon said there were indications that Chinese demand was ‘‘normalising’’ after overstocking.
He said Fonterra was expected to hold a board meeting in late February/ early March, and an update on the milk price forecast ‘‘could follow’’.
Con Williams, an economist with ANZ, said farmers ‘‘won’t be going out popping the champagne as the major reason for the turn in prices is drought in certain regions and the low farm-gate price restricting the use of supplementary feed’’.
Following the auction, AgriHQ lifted its Seasonal Farmgate Milk Price forecast for the 2014-15 season by 15 cents a kilogram of milk solids to $4.70/kg, the same as Fonterra’s forecast.
AgriHQ dairy analyst Susan Kilsby said Fonterra’s milk price forecast for this season now looked achievable.