New Zealand dairy giant Fonterra is set to review its farmgate milk price forecast tomorrow (Tuesday), amid poor market sentiment globally for dairy markets.
Some commentators are suggesting that the massive co-operative might cut its forecast by as much as 25%.
According to Susan Kilsby of New Zealand based AgriHQ, last weeks 1.1% fall in the GlobalDairyTrade auction knocked another 30 cents off its milk price forecast model which now sits more than $1 below Fonterra’s forecast price.
The AgriHQ seasonal farmgate price is now at $4.25/kg MS while Fonterra’s forecast remains at $5.30/kg MS — at least until tomorrow.
Kilsby said following the auction that if the latest GDT prices were applied to the entire season the milk price would be $3.65/kg MS.
“The GDT Price Index dropped 1.1% at the auction but this doesn’t tell the full story as a large fall in whole milk powder prices was masked by higher prices being achieved for other dairy commodities such as butter and skim milk powder,” the dairy analyst said.
“Whole milk powder prices fell by 9% which has a large impact on the farmgate milk price as the milk price calculation is heavily weighted to whole milk powder.
Not only were the results poor at the auction but the price outlook has also softened, Kilsby said.
“Since the previous GDT auction dairy commodity prices have continued to retreat. NZX whole milk powder futures contracts had fallen about 20% in the past fortnight,” she said.
Major New Zealand bankers Westpac has also released a more modest outlook for Fonterra’s farmgate milk price.
Its assessment is for a more modest but still significant fall.
Westpac says on its face, last week’s Fonterra dairy auction brought more bad news on that score, with a further heavy fall in whole milk powder prices.
However, it also says the fact that all other products on offer saw price gains suggests that stock overhangs are now the main factor weighing on prices, not a more fundamental weakness in demand.
According to Westpac that supports its view that the current price weakness will prove temporary. “So, for now our season milk price forecast remains at $4.80/kg; Fonterra will review its current $5.30 forecast this week.”