(BusinessDesk) – A fourth straight increase in dairy auction prices has prompted Westpac to raise its price milk price forecast for the current season.
The bank is picking a farm gate milk price of $6.30 per kilogram of milk solids, up from the $6.10 it had been picking early December. The upgrade puts its forecast at the top end of the revised $6-$6.30 range Fonterra provided last month.
Average prices jumped 4.2 percent to US$3,057 a tonne at last night’s GlobalDairyTrade auction, with the key whole milk powder price up 3 percent at US$2,777. The increases were higher than many economists had expected.
Westpac economist Anne Boniface said auction prices have now risen 7 percent during the past month and are up 11 percent from the two-year low reached in November.
While the bank had long expected a reversal of the price decline seen in the first half of 2018, the pace and extent of the improvement has been more rapid than it had expected.
She said the new forecast conservatively assumes auction prices remain near their current levels for the next few months.
“There’s clearly the potential for prices to continue to improve further from here if the recent lift in demand is maintained,” Boniface said in a note to clients. “However, we remain cautious about the potential for the pace of growth in Chinese demand for dairy products to slow as growth in China more broadly cools, and the potential for New Zealand milk production to continue to grow strongly.”
Dairy is New Zealand’s biggest export industry. China is the country’s largest trading partner and a major buyer of the cheese, butter and milk powders made or sold by Fonterra, Synlait Milk, A2 Milk, Westland Milk Products, Yashili and others.
Boniface said buying from China appears to have been unusually strong during the January auctions. That could in-part be due to poor domestic production, and appears unusual given recent data, including weak car sales and weak exports, which suggest growth in China is slowing sharply.
“At face value, the strong lift in the proportion of GlobalDairyTrade sales headed to the North Asian region – dominated by China – in January seems at odds with this.”
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