Bank of New Zealand hiked forecasts for farmgate milk prices, while milk powder futures hit a five-month high, as investors addressed growing El Nino concerns besides another surge in prices at GlobalDairyTrade.
Bank of New Zealand lifted to NZ$5.00 per kilogramme of milk solids its forecast for the milk price that farmers in New Zealand, the top dairy exporting country, will receive for their milk in 2015-16.
The estimate is well above the 13-year low of NZ$3.85 per kilogramme of milk solids that Auckland-based Fonterra, which processes the vast majority of the country’s milk output, is expecting to pay its producers.
Separately, whole milk powder futures for December, the best-traded contract, jumped 4.7% to $2,775 a tonne on New Zealand markets, where shares in Fonterra too.
Shares in the Fonterra Shareholders’ Fund closed up 1.2% at NZ$4.98, while stock in Fonterra Co-operative Group ended up 1.0% at NZ$4.99, matching their highest finish in four months,
‘Even stronger than expected’
The gains followed a further surge in prices at GlobalDairyTrade, the benchmark physical auction run by Fonterra, by 16.5% at Tuesday’s event, led by 21% surge in values of whole milk powder, which accounts for most volumes sold.
“Another surge was widely expected but the outcome was even stronger than most were expecting,” said Tobin Gorey at Commonwealth Bank of Australia, which owns BNZ.
The increase took to 48% the rise in GlobalDairyTrade prices since early August, when Fonterra made its latest milk price forecast.
Whole milk powder values have soared by 61%.
El Nino fears
While the price revival has been attributed in part simply to lower values luring in buyers, particularly with the coming of 2016 bringing a fresh quota of low-tariff imports for Chinese purchases from New Zealand, supply concerns have picked up a notch with the lingering El Nino.
The weather pattern – which is often associated with dry weather in New Zealand, limiting pasture growth and so curtailing milk yields – “seems to be having an influence on at least some observers”, Mr Gorey said.
The Real Estate Institute of New Zealand (Reinz) on Tuesday noted lingering worries among domestic farmers over the El Nino, while central bank governor Graeme Wheeler has flagged the “significant effect” that the weather pattern could have on the country’s largely agriculture-backed economy.
BNZ forecast New Zealand milk output falling this season by 5%, above an estimate by Fonterra of a fall of 2% in production, to 1.589bn kilogrammes of milk solids.
