Milk Monitor Another rise for the GDT

One for the books

By Gerald Piddock

Each month the milk monitor delves into the dairy industry and gives us the low-down on the good, the bad, the ugly and everything in between.

Wow. Three 4% GDT lifts in a row. It’s almost enough to make farmers forget about the impacts of the dry weather, worker shortages and rising on-farm costs that have impacted the season.

It has seen the GDT average price jump 13.5% since mid-January, while whole milk powder (WMP) has lifted 16.5%, with both sitting at $US4840/tonne and $4503/t respectively.

The result, of course, followed the previous 4.1% and 4.6% lifts that occurred on January 18 and February 1.

NZX dairy insights manager Stu Davison called the February 15 auction “astonishing”.

WMP was up 4.2%, skim milk powder (SMP) lifted 6%, while butter prices jumped 5.1% to a record high US$6686/t. Butter is now 17% higher in value than anhydrous milk fat (AMF), or $1200/t more.

Davison says the GDT Price Index result is the third-highest result ever at 1516 and only 57 points below the record high set in April 2013,

“The most striking difference of this result from the 2013 result is the balance of values across commodities. In 2013, WMP and SMP were the products doing the large gains.

“This time around, the cream group has done all the heavy lifting over the last year and now the powder products are helping to bring up the total – if these price gains keep happening, we will be in overall GDT price record ground rapidly,” Davison says.

That was a point ASB economist Nat Keall also made, saying it was broadbased across all product types.

“That’s a positive given it continues to suggest underlying dairy demand is strong (i.e. recent price gains aren’t just a function of a shortage for one or two products).

Westpac senior agri-economist Nathan Penny says the weaker dollar is also helping and he expected that to continue through the March and June quarters before increasing heading into the end of the year.

At the time of the February 15 auction, it was trading at 66 cents relative to the US dollar, down from over 70c late last year.

“We anticipate that Fonterra will be taking advantage of the lower NZD:USD particularly for the 2022-23 season. In contrast, there will be limited benefit to this season’s milk price as Fonterra will already be largely hedged for the season,” Penny says.

The result saw Westpac lift its new season’s milk price by $1 to $8.50 and maintained its $9.50/kg MS for the current season.

Keall says it further confirmed their $9.25/kg MS forecast for this season.

“We’ve long said that a record-high farm gate milk price for the current season is a certainty at this point; the question is exactly how high it will go?” he asks.

The bank forecasted an $8.80/kg MS price for the new season, but admitted it came with a large margin of error.

“We do think the futures market is getting a little bit overexcited expecting a milk price of $9.50+ for 2022-23,” he says.

Over the longer-term, Rabobank’s Emma Higgins expects the global supply shortages to continue, which will underpin commodity prices. However, the massive cost pressures farmers are absorbing will take some of the shine off and it may not translate into record profitability.

“Inflationary pressures driving up input costs, in addition to reduced production – particularly for the dairy industry – will likely degrade overall business profitability,” Higgins says.

“Meanwhile, labour shortages are a very real and weighty challenge for the ag sector, causing stress on businesses and taking the shine off excellent returns. Horticulture and agricultural contractors will be most impacted in particular over the upcoming months, alongside an ongoing shortage of dairy staff.”

The tough growing conditions have hit milk production throughout the country. Fonterra’s Global Dairy Update in January showed New Zealand milk production decreased 5.5% on milksolids in December, compared to December the year prior and 874.6 million kg MS or 3.1% behind last season.

The good dump of rain and wind from the remnants of two tropical cyclones came as a blessing and a curse, as it warded off any drought declarations, but it also caused some damage to crops and power outages.

But the fresh pasture growth it will provide should help keep production ticking along until it’s time to dry off the herd. n

Whole milk powder prices have lifted 16.5% since the January 18 auction, now sitting at US$4503 a tonne.