INSIGHT
UPFRONT MARKET VIEW
Fonterra opens 2021-22 with $8 midpoint GDT Prices - past 12 months 7,500
Words by: Amy Castleton
F
6,500
GDT PRICES - PAST 12 MONTHS GDT Prices - past 12 months
onterra has announced its opening milk price for the 20215,500 7,500 22 dairy season as a range of $7.25 - $8.75kgMS, with a midpoint of 4,500 $8/kgMS. The $8 price is the highest on 6,500 record for an opening price. In the 201314 season where the co-operative paid a 3,500 5,500 record $8.40/kgMS to farmers, Fonterra opened at $7/kgMS. 2,500 Chief executive Miles Hurrell 4,500 commented that the improving global economic environment and strong 1,500 3,500 demand for dairy, relative to supply, are Aug 20 Oct 20 Dec 20 Feb 21 Apr 21 sitting behind the strong forecast. He noted that global demand for dairy is 2,500 continuing to grow, especially from China. WMP SMP Butter AMF At the same time, growth in global milk 1,500 supply is muted, and the global supply Aug 20 Oct 20 Dec 20 Feb 21 Apr 21 of whole milk powder (WMP) is constrained. However, there are a number WMP SMP Butter AMF of risks, including Covid-19, the impacts of governments exchange rate of $0.721 US commodities certainly aren’t low, though winding back economic cents to the NZ dollar. The we have seen a downward push over recent stimulus packages, foreign exchange rate has potential to months. exchange volatility, changes swing over the next little while We did see a bit of a decrease in both in supply and demand patterns as the economic effects of the WMP and skim milk powder at the June Amy Castleton. in the dairy market, and potential pandemic continue to be felt and 15 GDT event, resulting in WMP prices impacts of any geopolitical issues. most countries try to get back to dipping below US$4000/t on average. The NZX forecast for the 2021-22 season something of normal life. WMP has been priced over this level since was $8.18/kgMS at the time of writing, A one cent move in the exchange rate the spike in March. The dip may see a well within Fonterra’s range, and higher typically equates to a 10 cent move in the bit more demand return to the market, than the midpoint. milk price. outside of China, as more price sensitive At this point, this forecast is largely Furthermore, we still have plenty of the regions will be more open to pay slightly based on dairy commodity futures trading season yet to run and we all know that lower prices. This should be supportive for on the NZX Dairy Derivatives market, plenty can change in the span of a season! relatively stable WMP prices. which continues to indicate relatively high Global Dairy Trade (GDT) hasn’t put on Overall, the dairy market still feels commodity prices for the majority of the much of a show for several events now, stable, with supply and demand reasonably season; albeit with a downward trend to with the last six events seeing small moves well balanced. We’re unlikely to see any the forward curve for all four commodities. in the price index. The last five GDT events significant drop in prices, instead it seems The Derivatives market does anticipate a have been down slightly. However prices we will see a slow decline over coming larger drop in prices around September or remain at relatively high levels, particularly months. October, as New Zealand heads into peak for milk powders. Butter and anhydrous milk production. milkfat are starting to be closer to historic • Amy Castleton, senior dairy analyst at The NZX forecast accounts for a NZ:US averages than ‘high’ – prices for these NZX Agri. 20
Dairy Exporter | www.nzfarmlife.co.nz | July 2021
