Westpac senior agricultural economist Nathan Penny says to date over 2023, global dairy prices have effectively been treading water.

Overall prices have fallen 2% since the start of the year, while whole milk powder (WMP) prices have increased by 0.7%. Last week’s Global Dairy Trade auction saw WMP price rise 0.2% to US$3277/metric tonne.

Penny says the result was marginally below expectations.

“We had pencilled in a 1% WMP price lift ahead of the auction, while the futures market was pointing to a rise of nearly 2%.

“As we have mentioned previously, we expect global dairy prices to rise over coming months as the Chinese economic recovery gains further momentum.

“However, for now, dairy buyers appear in no rush to bid prices higher.”

Penny says this contrasts with meat prices for example which have seen a noticeable uptick in prices for products where China is a key market, for example, mutton.

One explanation may be an overhang of stocks. Penny notes that if this is the case, then prices should still pick up over time as the demand lift will eventually lead to a rundown in these stocks.

“Nonetheless, we had anticipated that prices would be showing clearer signs of lifting by this stage of the season.

“Indeed, we are nearing the end of the season and therefore the window for prices to lift is closing.”

Penny now sees downside risks to their 2022/23 milk price forecast of $8.75/kgMS.

In contrast, he remains bullish on the prospects for the 2023/24 season: the bank is forecasting an opening milk price of $10/kgMS.

Last month, Fonterra reduced its forecast milk price range: from $8.50 – $9.50/kgMS, to $8.20 – $8.80/kgMS, with a midpoint of $8.50.

The co-op also updated its forecast milk collections for the 2022/23 season to 1,465 million kgMS, down from its previous forecast of 1,480 million kgMS.