17 Dec 2014

Hopes dairy price rise sign of better times ahead

1:51 pm on 17 December 2014

The dairy industry will be hoping that the results of last night's global dairy trade auction are a sign that dairy prices may be at last starting to recover.

However, a dairy analyst said it was still too early to know whether the slight improvement in prices will carry into next year.

The key whole milk powder price rose by 1.4 percent, overnight after its 7 percent fall a fortnight ago.

Prices for most other dairy commodities also lifted, increasing the overall average price by 2.4 percent.

Skim milk powder however, fell by 3.2 percent.

AgriHQ's dairy analyst Susan Kilsby said the auction result has to be seen as reasonably positive, despite AgriHQ dropping its own Seasonal Farmgate Milk Price by a further 5 cents to $4.20 per kilo of milksolids, well below Fonterra's current forecast of $4.70.

"The reason for that was really the forecast of prices for the remainder of the season. We base those on the NZX Dairy Futures prices and over the past fortnight they've tracked down for most commodities.

"We'll wait and see whether that changes after this GDT result whether we do see an improvement in pricing going forward. But basically one positive GDT result's not really enough to turn things around, so we'll be looking for some more of these sorts of results in the new year."

She said there will have to be a steady increase in the price if Fonterra's reduced forecast milk price of $4.70 is to hold.

"They're still expecting that milk powder prices will be back above three thousand (US) dollars a tonne by about April. At the moment the NZX Futures Market has that month priced at $2,500, so we need to see more recovery in these markets for that $4.70 milk price that Fonterra is forecasting to be achieved."

In response to the falling world demand and prices, Fonterra has reduced the volumes of dairy product it has been auctioning on GDT this season.

And Ms Kilsby said Fonterra is also signalling a drop in the forecast milk supply for the season.

"So, the fact that Fonterra says that it now doesn't expect any growth in milk supply for the current season, given that it was up 4 percent in the first half of the season, means it needs to drop off quite sharply through the remainder of the season for that to be achieved.

"That means supplies would tighten up, so that is a signal to the market that supplies won't be quite as plentiful as they have been."

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