Westpac Raises Farmgate Milk Price Forecast to $10 Amid Strong Chinese Demand
Source: DairyNews.today
Westpac has revised its farmgate milk price forecast to $10 per kilogram of milk solids, up from a previous estimate of $9, driven by a surge in demand for dairy products from China.
Westpac senior economist Michael Gordon highlighted that China's increased purchasing of dairy commodities, particularly milk powders, has significantly lifted Global Dairy Trade (GDT) prices. "China's return to the market is a key factor driving dairy prices higher, as buyers work to rebuild their milk powder stocks," Gordon said.
However, Gordon cautioned that while the strong demand from China is expected to support dairy prices in the short term, prices are likely to soften once this replenishment cycle is completed. Despite this, the revised $10 forecast would represent the highest nominal milk price on record. However, Gordon noted that when adjusted for inflation, this would not constitute a record high.
Historically, periods of elevated milk prices have been followed by a decline in the subsequent year, and in some cases, prices have fallen sharply. Gordon also pointed out that while adjusting for general inflation provides some perspective, it does not fully capture the substantial increase in on-farm costs in recent years.
For farmers, the current DairyNZ break-even price of $8.15 offers significant potential for further investment in farm operations, particularly after addressing deferred maintenance and other outstanding costs.
However, Gordon cautioned that while the strong demand from China is expected to support dairy prices in the short term, prices are likely to soften once this replenishment cycle is completed. Despite this, the revised $10 forecast would represent the highest nominal milk price on record. However, Gordon noted that when adjusted for inflation, this would not constitute a record high.
Historically, periods of elevated milk prices have been followed by a decline in the subsequent year, and in some cases, prices have fallen sharply. Gordon also pointed out that while adjusting for general inflation provides some perspective, it does not fully capture the substantial increase in on-farm costs in recent years.
For farmers, the current DairyNZ break-even price of $8.15 offers significant potential for further investment in farm operations, particularly after addressing deferred maintenance and other outstanding costs.
