Westpac raises milk price forecast 50c

AUCKLAND: Westpac has lifted its 202021 farmgate milk price forecast by 50s to $7.50/kg, 20c above the upper end of Fonterra’s forecast range.

If it comes to pass, a $7.50/kg milk price would be one of the highest in the coop’s 20year history.

In addition, Westpac has increased its 202122 milk price forecast by 25c to $7.25/kg.

Most economists have forecast a $7/kg milk price for the present season but have said a stronger New Zealand dollar could weigh on the season ahead milk price.

Fonterra’s current range for 202021 is $6.70/kg to $7.30/kg.

‘‘The forecast lifts are on the back of surging global dairy prices, particularly at the start of this year,’’ Westpac agri economist Nathan Penny said in a research note.

Since early November, overall dairy prices have jumped 17.2%, more than half the rise occurring since the start of the year.

Fonterra’s farmgate milk price has exceeded $7/kg only three times.

In the 200708 season, it hit $7.59/kg, $7.60/kg in 201011 and $7.14/kg in 201920.

Westpac’s upgrade follows this week’s Global Dairy Trade auction, in which prices overall improved by 4.8%.

Milk fat prices have been on a tear in the past few months.

Anhydrous milk fat (AMF) and butter prices, which both have a bearing on Fonterra’s milk price, have surged.

Over the past four months, AMF and butter prices have jumped by 38% and 44% respectively.

‘‘This is a key development as it demonstrates that demand for products consumed in restaurants and other food service settings has returned,’’ Mr Penny said.

Chinese demand was underpinning the price surge.

‘‘China largely has Covid under control and its economy has rebounded strongly.’’

Mr Penny pointed out that the Chinese economy grew over 2020, the only major economy to do so.

The global dairy price lift is mirroring a broader lift in other commodity prices.

Brent oil prices, for example, are trading above $US55 a barrel, essentially back at their preCovid levels. — The New Zealand Herald