Dairy prices leap 15% but farmers still wary
Waikato farmer Ben Moore had to wipe the sleep out of his eyes when he woke up to read the figures of the latest Global Dairy Trade auction yesterday morning.
Dairy prices jumped 15 per cent overnight, driven by demand for whole milk powder and butter before the season ends.
Moore leases 100 hectares and owns another 45ha in Okoroire near Matamata. The farm milks 450 cows.
He is also the vice-president of Waikato Federated Farmers and said every positive auction was good news.
‘‘But I would not go out and buy a Range Rover today, because who knows what is going to happen next with Covid-19 still around.
‘‘I also would not be jumping at an increased payout because Fonterra, for the past year or so, has been very conservative, which is a good thing,’’ he said.
Strong demand from China and Asia for dairy products had outstripped supply, resulting in prices rising, Westpac agri-economist Nathan Penny said.
The price of whole milk powder jumped 21 per cent, butter 13.7 per cent and anhydrous milk fat was up 7.4 per cent.
There had been eight consecutive increases at the global dairy auction and the last seven were mainly about underlying strength of demand, he said.
But Tuesday night’s trade was a reflection of the New Zealand story.
‘‘What we have seen overnight is just the realisation from markets that the New Zealand season is coming to an end and there is not going to be much milk around,’’ Penny said.
‘‘So we are getting a temporary spike on top of the underlying strength.’’
New Zealand’s season was winding down and markets knew the supply would not catch up with surging demand until spring.
The price strength was not limited to dairy. Due to Covid-19, markets wanted to hold extra food reserves in case of further outbreaks, he said.
New Zealand is the biggest supplier of whole milk powder and milk fat.
That is why skim milk powder rose only 3 per cent, as the milk season in the United States and Europe was just getting under way and could supply it for the next three months.
Westpac lifted its farm gate milk price forecast by 40 cents to $7.90 per kilogram of milk solids, while ANZ revised its forecast up by 50c to $7.70.
In a statement posted to the NZX, Fonterra said it was still ‘‘running the numbers’’ on its farm gate milk price.
Chief executive Miles Hurrell said the dairy giant was talking to sales teams in overseas markets to get more insight. There were other factors to consider, including seasonal timing, foreign exchange rates and the ongoing impact of Covid-19.
Another factor in the ‘‘extraordinary’’ price jump was the reliability of New Zealand supply chains versus other markets, which meant buyers trusted they would receive the products, he said.
Moore’s advice was to follow Fonterra’s lead and remain conservative with forward planning. ‘‘We set our budget for the year and anything extra we make goes to pay off debt.’’