INSIGHT
UPFRONT MARKET VIEW
Price remains resilient Words by: Amy Castleton
New Zealand milk production was up 1.8% year on year in September on a airy commodity price milksolids basis. October production is movements were mixed in yet to be released at the time of writing; November. Prices fell 2% at the however our expectations are that we first Global Dairy Trade (GDT) will see a smaller increase in October. Soil event of the month, but increased 1.8% at moisture had largely continued to decline the second event. This leaves the average through late October and the first half of price across all GDT commodities about November, particularly in the upper half of where it was at the end of October. the North Island and that impacted pasture Demand for dairy still seems to be largely conditions. resilient, though some commodities remain North Island peak milk production impacted by the state of the global food reportedly occurred a little earlier in the service sector. month than usual, and pasture quality This is particularly evident in butter and has now turned, with pastures heading anhydrous milkfat prices, which remain into their reproductive stage rather than considerably down on year-ago price levels. growth. However a bit of rain in late Cheddar is also affected to some degree but November means there is plenty of pasture less so than the fat products, as mozzarella about, even if the quality is not as good. tends to be more used by the food service November production is therefore expected sector than cheddar. Global milk supply to be flatter, but we’re unlikely to see a fall. is also building, though this seems to Overall we still expect to see growth in NZ be having little impact on commodity milk production for the 2020-21 season. prices to date. Buyers and sellers of dairy The excellent dairy commodity prices commodities seem to be more concerned also continue to be reflected on the NZX about Covid-19 and its impacts than the Dairy Derivatives market, notably in milk volume of product that is likely to be price futures. At the time of writing, the available. September 2020 contract sits at $6.95/ United States milk production was up kg MS. This is above the mid-point of a huge 2.3% year on year in September. Fonterra’s forecast range. The NZX forecast European Union milk production was is over $7/kg MS, at $7.13/kg MS. up a smaller 0.7% (indicative at the time The September 2022 milk prices futures of writing) – while a small increase in contract is $6.70/kg MS, with some percentage terms, Europe produces a large decline in commodity prices expected enough volume of milk that even a small next season. Assuming Covid-19 gets increase can be significant. Australian under control early next year (and that is production was up just 0.2% year on a big assumption!) growing milk supplies year in September – its smallest increase are likely to weigh on commodity prices, for several months. However year to especially if there is some hangover of date production is up 2% and Australia product in storage. Even if Covid-19 is has continued to have a good season so not under control, we may see a decline expectations are that milk will continue to in demand that weighs more heavily on grow. prices with many economies experiencing large drops in Gross Dairy commodity prices Domestic Product (and 7000 thus incomes). A $6.70/kg 6000 MS milk price would still 5000 be an excellent result but 4000 there is certainly downside 3000 2000 pressure on this. 1000 • Amy Castleton, senior Sep 18 Mar 19 Sep 19 Mar 20 Sep 20 dairy analyst at NZX Agri. WMP SMP AMF Butter
US$/tonne
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Dairy Exporter | www.nzfarmlife.co.nz | December 2020
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