2 Dec 2020

Dairy prices up and back to pre-Covid levels

12:16 pm on 2 December 2020

Prices have risen in the global dairy auction overnight and are now roughly back to where they were prior to the Covid-19 pandemic.

Organic milking teat cups.

Photo: RNZ / Alexander Robertson

The average price was up 4.3 percent to US$3261 a tonne. This is the biggest single increase since the beginning of July.

The price of wholemilk powder, which strongly influences the payouts for local farmers, was up 5 percent to US$3182 a tonne.

Westpac agri economist Nathan Penny said the result overnight was solid and was another indicator that prices were "getting back to normal".

"Increasingly prices are on solid ground after the covid-related weakness we saw earlier in the year and increasingly we're confident on the outlook for the milk price as well."

Fonterra is currently forecasting a milk price payout range of between $6.30 to $7.30 per kilogram of milk solids. It is due to give a Q1 business update on Friday.

Penny said Westpac recently set its forecast for this season, and the next, at $7.00 per kg of milk solids. This latest result at auction boded well for both those forecasts, he said.

"And [it] may mean that Fonterra either narrows its range of its forecast for this season or indeed outright makes a lift in that forecast range."

Rabobank dairy analyst Emma Higgins said it was continuing to see robust demand out of China. It was great to see so much product being shifted at such high prices, she said.

"An excellent result for farmers... and also a great result considering we did have concerns regarding milk production and they have clearly now passed in certain regions [which have been] getting more than enough rain over the last two weeks."

Nathan Penny said one cloud on the horizon was the rising New Zealand dollar, which would put downward pressure on farmgate prices eventually.

"Fonterra will have this season largely hedged but next season it probably has limited hedging in place so far, so that's one thing to watch."

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