BNZ Forecasts Robust Dairy Outlook Amid Variable Global Factors

BNZ's new forecast for the milk price stands at $10.25/kgMS, surpassing Fonterra's forecast midpoint by 25 cents. According to Doug Steel, BNZ's senior economist, diverse factors such as weather conditions affecting the EU milk supply and rising global fertilizer prices point towards another season of strong milk prices. Last season's prices are set to exceed $10/kgMS for the first time.

The recent Global Dairy Trade (GDT) auction saw a 0.7% rise in the price index, with whole milk powder hitting US$4012/metric tonne. This, Steel notes, supports a continued robust dairy market, assisted by low Chinese inventories which, despite a 19% month-on-month increase in June, remain 63% lower year-on-year. Such inventory levels are expected to support milk powder prices in the coming months.

Steel cautions, however, that increased New Zealand supply, indicated by Fonterra's record +43% year-on-year collections in June, could counter this bullish outlook. While the global dairy market stands resilient amid potential geopolitical and economic tensions, Steel points to a possible wide scope of outcomes for the season's milk price, dependent on global growth and supply-demand dynamics. As seen with the highest dairy-to-corn price ratio in over a decade, dairy prices are particularly high relative to grain, potentially influencing production decisions globally.