Global Dairy Trade falls 0.2 per cent but pundits forecast higher NZ prices

GDT prices have basically held steady for the past month, locking in the big increases earlier in the year.

The price index was down 0.2 per cent on Tuesday night, with a slight fall in some commodities and minor increases in others.

"Still the real story is that prices are holding onto their gains and we find ourselves increasingly bullish about the next season," ASB economist Nat Keall said.

"We always felt the odds were against a sharp correction in prices after March's mammoth auction, but the resilience in prices has exceeded our expectations.

"Notably, this is the fifth consecutive auction in which WMP prices have held above the US$4000/tonne mark."

The strong performance has prompted the bank to lifts its NZ farmgate milk price forecast to $NZ8.20/kg MS - an NZ70 cent leap.

"Indeed, an $NZ8.20 price would be the second-best result on record," Mr Keall said.

Australian market analyst Freshagenda has also lifted its outlook.

Director Steve Spencer said it had updated its outlook for the commodity milk value and average southern Australian farmgate milk price for the current and 2021/22 season.

"The outlook for the coming season is dominated by the ongoing impact of the COVID-19 pandemic, which is impacting economies and commodity trade across the globe," Mr Spencer said.

"Based on projected commodity values from the Freshagenda Global Dairy Directions analysis, we are forecasting a small improvement in the average southern farmgate milk price in 2021/22.

"As was the case last year, this forecast is still not without risk given the unprecedented circumstances the world continues to face."

Westpac senior agri-economist Nathan Penny said although dairy prices slipped a touch overnight, they had trod water at healthy levels for the past four auctions.

Westpac expected Fonterra to announce a healthy opening 2021/22 season milk price forecast midpoint "with something comfortably north of $7/kg".

Mr Penny said whole milk prices were now 54pc higher than at the same auction a year ago.

"In addition, WMP prices are currently over a third above their five-year average," he said.

The result was consistent with Westpac's milk price forecast of $8/kg MS for 2021/22.

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Mr Keall justified ASB's move to lift the forecast after a seemingly single uneventful auction.

"There are a combination of factors we think justify such a move," he said.

Whole milk powder prices had held up higher for longer than was anticipated with indicators suggesting buyers were still worried about securing supply further into the future.

Chinese consumer spending was expected to recover further throughout the year and Fonterra's effective NZD/USD conversion rate looked to be more favourable than last time dairy prices were this high, Mr Keall said.