Dairy prices levelled off in Fonterra’s latest Global Dairy Trade auction but remain close to the peak reached at the previous auction a fortnight previously.
The GDT price index eased 0.9% to 1579, the second-highest level on record, down from 1593.
Dairy farmers who had seen prices surge in the past five auctions may have been disappointed. But as Westpac senior agri economist Nathan Penny pointed out, uncertainties around global dairy demand arising from surging Covid-19 case numbers in China, the world’s largest dairy market, is likely to have weighed on prices.
Fonterra has steadily raised its forecast payout to the $9.30-$9.90kg/MS range – the highest it has ever been – as the GDT index has climbed 18% this season.
The average price for whole milk powder (WMP), which has the most impact on what farmers are paid, fell 2.1% to US$4596 (NZ$6801) a tonne at the latest auction. On the other hand, skim milk powder, also a key driver of the milk price paid to farmers, rose 1.6% to US$4545/t, the highest level since 2013.
North Asia bidders bought the biggest volume of WMP, increasing their purchase from the previous auction. South East Asian buyers also bought more WMP and those two regions accounted for the bulk of the WMP sold at this auction.
Butter slipped 1.8% to US$6958/t, snapping a sequence of 11 consecutive gains, whereas cheddar rose 0.3% to a record US$6412/t. Anhydrous milkfat increased 0.4% to US$7111/t, and lactose fell 0.6% to US$1618/t.
Commenting on the GDT auction outcome, ASB economist Nat Keall said market fundamentals still support prices holding their ground or advancing further in the near term.
He saw the result as “a flea bite on the nose of Goliath” given how far prices have come.
“There still isn’t much sign that tight global supply conditions will ease with any alacrity,” Keall said.
“Stretched capacity and rising costs pressures remain constraints on output globally, while in much of the Southern Hemisphere, there’s the overlay of unfavourable weather conditions.”
The good news for farmers – he pointed out – is that a record milk price is already locked-in for the current season, and farmers have a good starting point in the offing for 2022/23.
The contribution dairying is making to the country’s economic wellbeing through troubling Covid times is shown in the latest balance of payments data, published today.
In the December 2021 quarter, compared with the September 2021 quarter, the seasonally adjusted goods deficit widened by $417 million to $2.3 billion.
Goods imports rose by $926 million (up 5.1%) to $19 billion.
The value of seasonally adjusted goods exports rose by $509 million to $16.7 billion. This increase – to some extent, but not enough to offset growth in imports – was driven by an increase for milk powder, butter and cheese, mechanical machinery and equipment, and aluminium. The rise in exports was partially offset by a fall in the export of logs.
Milk powder, butter and cheese generated $15.6 billion of export revenue in the 12 months to January 31 this year, an increase of 9.7% during that year. They accounted for 27% of total merchandise export receipts of $64 billion.