Warning on global dairy prices

Banks cautious as global dairy prices look to be hitting peak


Banks are still forecasting higher global milk prices for season 2019/20 but are warning that prices are close to hitting their peak.


Banks are still forecasting higher global milk prices for season 2019/20 but are warning that prices are close to hitting their peak.

The Global Dairy Trade price index fell again at last Tuesday's auction, bringing prices back to January levels.

The auction was 3.8 per cent down to an average price of $US3208 a tonne, the lowest level since January 15.

All commodities, with the exception of rennet casein, were down, led by butter, which fell 5.7pc to $US45553/t.

The key whole milk powder index also suffered a major loss, down 4.3pc.

But Rabobank says positive factors in the global dairy market along with a softening Australian dollar have seen lift its forecast full-year southern Australian region milk price to A$6.60 a kilogram milk solids for 2019/20.

But it cautions the peak is imminent.

The bank's senior dairy analyst in Australia Michael Harvey said the bank was predicting a better season ahead for Australia's dairy sector.

"Strong opening prices will support cash-flow for producers, while there has been some recent rainfall, feed costs have come down slightly, confidence levels have improved and milk price signals remain strong," he said.

Mr Harvey said competition for milk between dairy companies remained strong, and this had supported early and record-high opening and forecast closing milk prices in 2019/20.

New Zealand forecasts

New Zealand bank ASB's senior economist Chris Tennent-Brown said the bank still retained it forecast 2019-20 New Zealand price of $NZ7/kg MS, despite Tuesday's GDT auction results.

"The quantity of product sold in this auction was also the biggest volume since mid-February, which may have contributed to the sogginess of this auction," Mr Tennent-Brown said.

"Our view is that buyers are waiting out until NZ's spring production, contributing to the recent weakness in prices.

"However, we expect upcoming production to be weaker than last year's and that prices will eventually be squeezed higher."

Mr Tennent-Brown said the spring period was important.

"If we are right that domestic production is soft this year compared to 2018, dairy buyers are likely to be caught short given many buyers appear to be currently living hand-to-mouth," he said.

But he warned that the bank's forecasts at this time of the season "always come with a very wide range of error".

"Last night's auction once again highlights the volatility inherent in dairy markets," Mr Tennent-Brown said.

Westpac NZ senior economist Satish Ranchhod said the auction result was the third consecutive fall in prices.

"It's still early in the season, but with a run of price declines in recent weeks there is downside risk to our forecast for a $NZ7.20/kg farmgate milk price (for New Zealand) for the 2019/20 season," he said.

"Looking to the remainder of the season, the outlook for auction prices is mixed.

"The USDA (United States Department of Agriculture) has recently reported cuts in its forecasts for production in both 2019 and 2020 citing reductions in cow numbers, falling production per animal and rising costs.

"However, slowing economic conditions in some of our key trading partner economies, including China and some European countries, signal headwinds for prices."

Australian production

With the milk season in Australia winding down slightly more quickly than expected, Rabobank is expecting national milk production to close the current season down 8.5 per cent at 8.5 billion litres.

Despite the improving outlook for milk pricing, Mr Harvey said, the challenge to begin rebuilding milk supply would linger into the new season.

"Autumn was dry for many dairying regions, leading to ongoing feed shortages," he said.

"Also, many dairy farm operators will need time to rebuild herds.

"With a return to profitability as milk prices improve, an immediate focus will be on repairs and maintenance ahead of major expansion projects."

As a result, the bank's forecast for Australian milk production in the 2019/20 season has been revised down, with milk supply now expected to fall by two per cent, taking annual production back to 8.4 billion litres.

This story first appeared on Australian Dairyfarmer

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