Farmgate milk price: Rates unlikely to fall with Global Dairy Trade

An international dairy market correction is unlikely to do much damage at the farmgate. And that’s being put down to one key factor.

New Zealand is more exposed to international dairy prices in the wake of Australia’s mandatory dairy code of conduct. Picture: Zoe Phillips

Softening international demand for dairy is not set to hit the Australian farmgate in the post-mandatory code era.

The Global Dairy Trade index dropped 3.6 per cent, overall last week with the key Whole Milk Powder category down 3.1 per cent.

However, the recent drop represents only a slight correction from the dizzying heights on the GDT index earlier this year with the overall indicator jumping by more than 20 per cent between December and March.

Dairy Connect president Graham Forbes said the mandatory dairy code of conduct, introduced early last year and now in its second season of enforcement, changed the game.

He said strong opening prices were set to be maintained throughout the 2021-22 financial year, with farmgate figures off to a flying start.

“The code means processors have to set a price that can be kept throughout the season and obviously there’s plenty of confidence this season,” Mr Forbes said.

“International prices jump around but the trend here in Australia has been positive.”

Across the Tasman, NZ agri-economist Nathaniel Keall said the GDT falls were ahead of the ASB bank’s expectations as well as the futures market projections for dairy.

“The moves point to some downside risk to our $NZ8.20/kg ($7.66) milk solids forecast for the season,” the ASB economist said .

“Prices are moving lower a shade faster than we had previously anticipated, and the fact the fall comes despite the fall in volumes on offer is a bearish sign.

“The contract curve also now has a sizeable downward slope, showing prices falling substantially for later dated contracts.

“This suggests prices have lost a bit of momentum as we head deeper into the new season.”

Mr Keall said the Chinese market had fuelled the strong growth in New Zealand dairy prices earlier this year but that trend was now easing.

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