The price of whole milk powder, which has the most impact on farmgate milk prices, gained for a third straight global auction, welcome news for dairy farmers as the industry heads into peak milk season.
The average price for whole milk powder rose 4.8% to US$2931 (NZ$4870) a tonne at the Global Dairy Trade auction overnight. The overall index gained 4.4% with five of the seven products increasing in price.
Global dairy prices fell sharply at the start of this season amid lacklustre demand from China, Fonterra’s biggest market for whole milk powder. But Chinese buyers returned to the market last month, pushing up whole milk powder prices almost 10% following an 18% slump in August.
“New Zealand farmers will be happy with this result,” said NZX dairy analyst Alex Winning.
She attributed the rise to tightening global milk supply in response to increased costs and extreme weather patterns.
Demand from North Asia had increased as Chinese milk production slowed, and the country’s milk powder inventories got closer to expiration, she said.
North Asia was comfortably the top buyer for whole milk powder at the latest auction, followed by Southeast Asia and the Middle East, she said.
Fonterra’s milk collection so far this season is 2.2% behind last season as farmers pull back production in response to weaker milk prices and elevated costs. The season started in June and production typically ramps up quickly and peaks in late October.
Fonterra has had to cut its farmgate milk price forecast twice already this season after global dairy prices plunged.
The co-operative expects to pay farmers between $6 and $7.50 per kilogram of milk solids this season. The $6.75 per kgMS mid-point, which farmers are paid off, is down from $8.22 per kgMS last season and is set to be the lowest payment since $6.35 per kgMS for the 2018/19 season. It is below DairyNZ’s breakeven milk price of $7.78 per kgMS, meaning many farmers will be unprofitable this season.
The futures market is picking a milk price of $7.62 per kgMS for this season and $8.20 per kgMS for next season.
