Cheese has proven to be a bright spot amidst a stagnant dairy market

Dairy market analysts have revised their farmgate milk price forecasts following a disappointing first June Global Dairy Trade (GDT) auction, which saw a 0.9% decline in the GDT price index. This was the first auction of the 2023-24 dairy season in New Zealand and marked the second consecutive 0.9% decrease in the price index for six dairy commodities.

Among the individual dairy products, cheese prices experienced a healthy increase of 7.4%, while anhydrous milk fat rose by 1.8%, butter by 0.5%, skim milk powder remained unchanged, buttermilk powder decreased by 2.4%, and whole milk powder declined by 3%.

Westpac senior agri economist Nathan Penny adjusted his forecast downward by $1.10 to $8.90 due to limited cheese production capacity in New Zealand. ASB economist Nat Keall, on the other hand, raised his forecast by 25 cents to $7.25, reflecting the recent weakness of the New Zealand dollar.

Previously, there was a $3 gap between the two analysts' forecasts, but it has now narrowed to $1.65. Their forecasts align with Fonterra's first official forecast range of $7.25 to $8.75.

Nathan Penny highlighted the behavior of cheese prices and noted that New Zealand is not well-positioned to meet the increased demand. Cheese prices have been significantly higher in the past 18 months compared to the previous five years, potentially influenced by COVID-19 lockdowns, increased home deliveries of pizza, and growing demand for cheese in Asian markets.

Although Fonterra has invested in mozzarella plants, the majority of New Zealand dairy processing is focused on milk powder production, with historically limited production of high-quality cheese. Penny stated that despite the high cheese prices, there hasn't been a substantial increase in volumes, and more production of cheese from milk powder would be ideal.

ASB's Nat Keall expressed a pessimistic outlook regarding Chinese purchases of whole milk powder (WMP). He noted that dairy prices have been largely stagnant in recent auctions and highlighted China's modest and uneven return to the global dairy market after six months of COVID-19 restrictions. With strong local WMP production and relatively subdued domestic consumption, the global dairy market dynamics do not appear to strongly support price increases, according to ASB's assessment