World milk fat product prices have slid a long way off their 2017 highs and are now threatening to pull down farmgate milk prices as the New Zealand spring flush begins.

NZ dairy farms have most of their cows calved and in milk and are approaching the early September balance date, when warmer weather gives pasture growth in excess of the herd’s daily needs.

International buyers of dairy products await news of NZ spring weather and milk production prospects before committing themselves to big buys, dairy analysts say.

The Global Dairy Trade index of prices fell 3.6% at the latest auction but that was not on news of any change in dairy fundamentals of supply and demand.

The fall in butter prices of 8.5% and in anhydrous milk fat of 6.9% was a result of bigger quantities to be placed by Fonterra on the auction platform over the next 12 months.

At US$4400/tonne butter is back to where it was 18 months ago before it soared to the record highs of $6000 a year ago.

At $5300 AMF has returned to a level last seen in late 2016 and is now 24% below the record $6885 in November last year.

As the world’s largest producer of tradable butter Fonterra has done particularly well from the very high prices but now appears to be precipitating the price decline.

RaboResearch dairy analyst Emma Higgins said lower GDT prices reflect general weakness in fat markets offshore though they are beginning to firm in Europe.

“The lift in volumes of both AMF and butter on the GDT, by 5000 tonnes over the next 12 months, wouldn’t have helped these results,” she said.

“The general feel is that NZ milk production is anticipated to be plentiful with benign weather conditions suggesting a strong start to the season and helped further by farmgate milk prices remaining strong.

“At this stage buyers are in no rush to procure stock and are happy to wait and see how our spring peak pans out.”

RaboResearch still anticipates milk production across the season to lift by 2% and is for the present maintaining its milk price forecast at $6.80/kg for the new season.

Other commentators have $6.50 predictions and say there is significant downside risk that suggests Fonterra will have to revise its $7 forecast downwards.

ASB senior rural economist Nathan Penny said the recent falls in the value of the NZ dollar against the US dollar were partly reversed in recent days and are no longer providing a boost to dairy returns.

AgriHQ dairy analyst Amy Castleton said her computerised model indicates a farmgate milk price of $6.43 based on the last GDT results and the futures prices.

Article sourced from https://farmersweekly.co.nz