Dairy auction prices on the Global Dairy Trade platform posted solid gains, but Westpac NZ remains cautious on prospects for the Chinese economy and associated Chinese dairy demand.
Dairy auction prices on the Global Dairy Trade platform posted solid gains on 16 January. Overall prices were up 2.3%. Key prices for whole milk powder (WMP) gained 1.7%. According to chief economist Kelly Eckhold of Westpac NZ, the result was broad based and followed on from a similarly strong initial auction for 2024 in the first week of January.
All products posted price rises. Butter and anhydrous milk fat prices led the way, surging 5.8% and 4.3%, respectively. “We didn’t have a formal forecast for the WMP price result this time but the general trend in dairy prices is in line with the upward adjustment we made to the season milk price just ahead of Christmas,” Eckhold says in a dairy update. “The futures market had pointed to a small WMP price rise at this auction, and so this auction modestly surpassed those expectations.”
Overall prices now sit at their highest since June 2023. Prices have lifted by around 25% since this year’s low in August. Overall prices are now up 3% on a year ago, 4% below their 5-year average levels and 5% above the 10-year average, Eckhold points out.
Westpac NZ thinks that expectations of reduced production data in New Zealand and offshore may still be supporting prices. “On the demand side, this auction saw demand from China as well as Middle Eastern and Southeast Asian buyers,” Eckhold says, adding “We remain cautious on prospects for the Chinese economy and associated Chinese dairy demand. Deflation in consumer and producer prices continued in China according to data from late 2023.”
Westpac NZ is retaining its milk price forecast for this season at NZ$7.50 (US$4.56) per kg milk solids, in line with the mid-point of Fonterra’s guidance.
The latest 2024 milk production forecast of the US Department of Agriculture (USDA) is lower due to a reduced average cow inventory for the year and slower growth in output per cow. Currently, the 2023 milk production forecast is 226.9 billion pounds. If realised, 2023 production would be up less than 0.18% from 2022.
The expected fat and skim-solid bases imports for 2024 are lowered, based on lower expected cheese and butter fat imports. For 2024, the USDA expects exports on a fat basis to be higher as butter and cheese prices are expected to be more competitive on the world market. Skim-solids basis exports for 2024 are expected to remain unchanged, according to the USDA. The 2024 all milk price is lowered to $20 per cwt.
According to the latest Situation and Outlook Report from Dairy Australia, milk production in Australia will remain steady over the 2023-2024 season despite the anticipated impacts of the El Niño weather event.
Record profits were recorded in some regions in Australia last season, and high farmgate milk prices this season bode well for farmers. Meanwhile, there are some challenges such as high production costs, Australia’s competitiveness for dairy products and economic constraints on consumers.
Dairy Australia’s industry analyst Eliza Redfern says the Australian dairy industry enjoyed record profitability last season and is still benefiting from high farmgate milk prices this season, as well as strong retail revenues.
“High production costs, Australia’s price competitiveness in dairy markets and economic constraints on consumers are emerging risks. These challenges will be a focus over the rest of the season, in anticipation of Australian and global markets moving towards equilibrium,” noted Redfern.
Analysts of Dairy Australia have seen an influx of New Zealand cheese in Australia in recent months. In its latest Situation and Outlook report, Dairy Australia says 2023 was a record year for dairy imported into Australia.