Big jump in dairy prices

17 Jan, 2018 10:44 AM
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The market's realising there could be a supply and demand dilemma ...

The 4.9 per cent jump in dairy values at the latest GlobalDairyTrade auction is the biggest shift in price movement since August last year.

The lift saw prices sit at an average of US$3310 (NZ$4549) per tonne, with butter up almost 9 per cent.

All of the products on offer lifted with whole milk powder (WMP) up 5.1 per cent to US$3010, butter up 8.8 per cent to US$4897, anhydrous milk fat up 2.2 per cent to US$6547, skim milk powder up 6.5 per cent to US$1818, cheddar up 5.2 per cent to US$3486 and rennet casein up 5.5 per cent to US$4709.

NZ Federated Farmers Dairy chairman Chris Lewis said the New Zealand dairy industry had forecasted a cut in production in early December and the market had likely taken a 'wait and see' approach to this information.

In the past bouts of rain had occurred when production cuts in New Zealand had been forecasted.

At this stage of the milking season, even if there was decent rain it would not reverse the deficit that regions around the country had experienced.

At this stage of the season, farmers would be looking to hold their production levels rather than to try and increase them, he said.

"The market's realising there could be a supply and demand dilemma with the supply maybe not coming out of New Zealand."

The result follows a slight recovery two weeks ago when prices lifted 2.2 per cent, but that followed a 19 per cent drop in volumes placed into the auction by Fonterra.

?While this latest auction was the biggest lift in nearly eight months, Mr Lewis said there had been some big falls throughout November and December.

WMP prices had also appeared to have stabilised, which was a positive because it would help confirm a mid-$NZ6/kg milk solids payout (for NZ farmers), he said.

"If we head into the latter part of January with WMP in the low $3000s [a tonne], then I think farmers will be reasonably happy," he said.

He had been told of some farmers whose production had dropped by as much as 20 per cent and this was a big income drop for them.

They would be hoping the payout would stabilise because of the cash shortfall they would have to make up.

"There is a lot of feed been brought in on farms at the moment to make up for feed deficits and I don't think any farmers are talking about making lots of money. It's all about stabilising their cash flow.

"At the start of the season if you had told farmers $6.50/kg milk solids (MS), they would all be confidently telling you they would be making a profit, but with the production drop and buying supplements in, it's about surviving at the moment."

Analysts had adjusted their 2017-18 farmgate payout predictions in response to the slight improvement, and also to Fonterra's projection of a 4 per cent decline in New Zealand milk production.

Fonterra's own forecast is $NZ6.40 per kilogram of milksolids, while the ANZ's Con Williams provided a range of $NZ6.25-to-$6.50kg/MS.

Mr Williams said the drop in production would not be as great as Fonterra has predicted, following early January rain.

The ASB is sticking to its forecast price of $NZ6.50, while AgriHQ's forecast is the lowest at $NZ6.10.

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