ANZ cuts milk price forecast

ANZ Bank, New Zealand’s biggest rural lender, has revised down its milk price forecast for next season by 70c a kg to $5.75/kg, based on changing consumption patterns arising from Covid-19-related shutdowns around the world.

The bank’s new forecast comes ahead of today’s Global Dairy Trade auction, which futures market pricing suggests is going to be weak.

ANZ agriculture economist Susan Kilsby said global dairy commodity markets are being hit by consumption pattern changes related to cafes and restaurants being shut down.

The bank has kept its forecast for the current season, which ends on May 31, at $7.15/kg.

ANZ’s downward revision for next season was driven by significant deterioration in economic conditions for much of the globe, more specifically the recent sharp fall in dairy commodity prices in the US and European markets, Kilsby said.

“The reduction in demand for dairy products from the food-service sector has resulted in growing surpluses of milk, especially in regions where a large share of dining normally occurs outside of the home,” she said in a report.

“Thus far, the prices New Zealand is receiving for its dairy commodities have held up much better than the prices of similar goods traded within the US and Europe.

“But it’s only a matter of time before prices for New Zealandsourced dairy products also come under pressure,” she said.

ANZ’s revised forecast comes amid futures market weakness ahead of today’s auction.

“The futures market is looking at a 2 to 3 per cent decline,” said Nigel Brunel, director of institutional commodities at OM Financial.

At the last GDT sale on April 22, whole milk powder prices, which have the greatest bearing on Fonterra’s farmgate milk price, fell by 3.9 per cent to US$2707/tonne – back to where they were in January 2019.

Most economists have revised down their 2020/21 milk price expectations due to the disruption caused by the pandemic. Rabobank is predicting just $5.60 a kg of milksolids for the upcoming season.

Only minor adjustments are expected to be made to Fonterra’s $7 to $7.60/kg forecast for the current season, which ends on May 31. Fonterra will issue its 2020/21 forecast later this month.