TL;DR:
- Dairy industry optimism grows as global dairy prices see a 12% rise since summer, with significant increases in whole milk powder and butter prices.
- Despite the challenges of high interest rates and input costs, there’s hope for improvement, buoyed by recent government promises and the potential for further milk price increases.
- Economic forecasts suggest a possible uplift to $8/kgMS for the season, with attention to Chinese market dynamics and their impact on future demand.
In the New Zealand dairy sector, a wave of optimism is permeating among farmers, according to Richard McIntyre, Federated Farmers dairy section chair. This sentiment comes in the wake of consecutive rises in global dairy prices, marking a 12% increase since the onset of summer.
The Global Dairy Trade (GDT) auction has witnessed its largest gains recently, with whole milk powder and butter prices leading the charge, rising by 13% and 32%, respectively.
This positive trend has propelled overall prices to their highest point since June 2023, achieving a 29% increase from the previous year’s low in August. McIntyre acknowledges the dairy farmers’ struggle with high-interest rates, input costs, and milk prices below the breakeven point. Yet, there’s a prevailing belief that the tide is turning for the better.
The optimism is partly fuelled by political developments, with last year’s general election ushering in a government that has pledged to address many concerns within the dairy industry. The key now lies in the actualisation of these promises.
The recent uptick in GDT prices has offered a glimmer of hope, with Fonterra’s milk price witnessing a 75-cent rise since August and speculation about further increases.
Fonterra’s forecasted milk price midpoint stands at $7.50/kgMS, with Westpac adjusting its forecast to $7.90/kgMS, closely approaching Fonterra’s upper guidance range. This upward trend in dairy prices, interestingly extending into 2024, is being closely watched, especially with Chinese consumers’ cautious stance potentially influencing demand.
Economic support measures in China, primarily targeting the industrial sector, might indirectly benefit the dairy sector as well. ASB’s revised forecast now anticipates farmers receiving around $8/kgMS for this season, reflecting the sustained resilience in dairy prices. The focus remains on whether this positive momentum can be maintained in the face of a decelerating Chinese economy.
