$10/kg milk price expectations still safe, despite weak GDT auction

Dairy prices fell at today's Global Dairy Trade auction.

A $10/kg milk price forecast for this season still looks safe, despite prices falling for the second time in a row at this morning’s twice-monthly Global Dairy Trade auction, analysts say.

Overall, the tone was mixed, the GDT price index falling by 0.5% since the previous event.

Whole milk powder — which has the biggest impact on Fonterra’s farmgate milk price — dropped 2.2% to an average of US$4061/tonne ($7184/tonne) following a 0.2% fall at the previous auction.

Skim milk powder — Fonterra’s second-biggest reference product — rose 0.6% to an average of US$2744/tonne.

Today’s auction comes amid escalating uncertainty from tariff wars between major global trading countries and as local production starts to thin out before the end of the season.

Rosalind Crickett, dairy analyst at NZX Dairy, said price support for butter (up 2.7% at $7577/tonne) and skim milk powder prevented the GDT price index falling further.

She said whole milk prices holding at the US$4000 mark would sustain the $10.00/kg mid-point of Fonterra’s current forecast range.

Westpac has forecast a $10.30/kg milk price, and economist Paul Clark said the last two auctions have done nothing to change the bank’s view.

“In terms of our $10.30 milk price forecast, we have actually built in an assumption of lower GDT prices for the rest of the season (to May 31).

“While prices have come off, we are still comfortable with $10.30 at the moment,” he said.

“A couple of auctions does not make a trend,” he said, adding continued weakness in the New Zealand dollar had been supportive for milk prices.

NZX’s Crickett said the most recent global milk production statistics showed Chinese milk production fell 9.0% in December and by 2.6% in Australia over January.

New Zealand saw growth with milksolids up 5.0% in January, meanwhile production in US and Europe was moderate over December and January.

“While Europe is largely noted to be self-sufficient in dairy trade, a large proportion of what it does export has historically been to the US — which could shift in the future following the introduction of US tariffs,” Crickett said.

New Zealand’s commodities have mostly performed strongly over February, with the ANZ World Commodity Price Index rising by 3.0% month on month.

“All sectors lifted during the month, except horticulture, which is taking a well-earned off-season break,” ANZ said.

In world price terms, dairy prices lifted 5.1 % month-on-month in February.

“Whole milk powder was the strong performer, with North Asian buyers in the mix again, while demand from European buyers surged,” ANZ said.

Skim milk powder rebounded 3.3%, almost making up last month’s fall. Butter and cheese prices firmed, but casein eased 1%.

“The dairy industry is enjoying high milk prices, strong production and a low New Zealand dollar, but the drought declared in the Taranaki region will strain pasture growth and farm management strategies for the region that is responsible for around 9% of New Zealand’s milk production,” ANZ said.

The meat and fibre index lifted again, this time by 1.4%.

Wool prices are now at levels not seen since June 2018, having grown 49% since the low in October 2022.

Beef made another solid gain (3.2%), while lamb prices were 1% lower and settling into a flat six-month trend.

The horticulture index paused and will resume when New Zealand product starts to flow through export markets, ANZ said.

Apple exports are already under way for 2025; kiwifruit exports tended to follow in March.

The forestry index eked out a 0.4% gain.

ANZ said log export values have trended down since a standout year in 2021.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.