Global dairy prices surge again

Global Dairy Trade October 19, 2021, auction posts 2.2% lift


Global dairy prices surged again at auction on Tuesday night, posting a 2.2 per cent increase.


Global dairy prices surged again at auction on Tuesday night, posting a 2.2 per cent increase.

Whole milk powder prices are now 25pc higher than a year ago and have New Zealand pundits talking up the potential for record prices there for season 2021/22.

But the Australian market is being hurt by a higher Australian dollar.

Auction results up across the board

The Global Dairy Trade auction results for Tuesday night saw increases in all commodity groups.

Lactose led the charge up 5.9pc to $US1258 a tonne, while butter was not far behind, up 4.7pc to $US5111/tonne.

Cheddar was up 2.9pc, skim milk powder was up 2.5pc and whole milk powder was up 1.5pc.

The result continued the rally in the market since mid-August.

"The result cements global dairy prices at very healthy levels," Westpac NZ senior agri economist Nathan Penny said.

"Taking a longer-term perspective, prices are around 20pc above their five-year average."

READ MORE: Australian dairy at a critical juncture: Rabobank

ASB economist Nat Keall said forward contracts pointed to prices maintaining momentum into the latter half of the season.

"The GDT contract curve developed a sharpish downward slope over the winter, but spring developments have seen the curve flatten over the past few quarters with prices stabilising in a healthy $US3700-3900/tonne range," he said.

"There will be further movement here as we head into summer, but the implication is that buyers expect supply to remain tight moving into the latter half of the season."

Production fall supports prices

Mr Keall said falling production in NZ was supporting the higher prices.

"It looks increasingly likely production will undershoot the expectations most of us held earlier in the year," he said.

"At the beginning of the season, the general expectation was that higher prices would produce a supply response that would in turn ease future pricing pressures, in line with the usual dairy cycle.

"That dynamic now looks much less likely - NZ milk production has been slow to ramp up as it heads into the peak production months.

"We now expect NZ production to wind up 0.5-1pc lower than last season."

Mr Penny said he expected that ongoing weakness in global dairy production would continue to underpin global dairy prices.

Record prices a possibility

Both NZ analysts said the strong market could lead to record farmgate prices in that country for 2021/22.

Mr Penny said the solid result and outlook reinforced Westpac's 2021/22 farmgate milk price forecast of $NZ8.50 a kilogram milk solids.

"If achieved, that would be a record high, beating the previous record of $NZ8.40/kg MS set back in the 2013/14 season," he said.

ASB is more bullish and has lifted its forecast price to $NZ8.75/kg MS, up $NZ0.55.

"GDT events over the first half of spring have shown no sign of demand softening and, with supply continuing to look tight, we're comfortable making a sizeable upward revision," Mr Keall said.

But he warned there was still a lot of uncertainty.

"Commodity markets have been particularly volatile over 2021 thus far," he said.

"Still, the trends over the beginning of spring suggest that the possibility a record farmgate milk price for the season is very much live."

Strong dollar hurts Australian returns

Australian market analyst FreshAgenda said its AusExport Index declined this week, solely due to the stronger Australian dollar.

Freshagenda said spot quotes from Australasian exporters for whole milk powder rose $US20/t to $US3800/t, while cheddar, skim milk powder and butter was steady.

But the stronger dollar meant the index fell 3.3 points to 234.8, a four-week low.

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The story Global dairy prices surge again first appeared on Farm Online.


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