Global Dairy Trade (GDT) event 310 resulted in a drop to the GDT price index, easing 1.3%, with prices dropping for anhydrous milk fats (AMF), cheddar and whole milk powder (WMP), while prices for the remaining commodities shifted higher. As global stocks of skim milk powder (SMP) and butter remain tight, it’s no surprise that prices are supported. As is the same with AMF falling, as excess milk fats are pumped into the market out of the US. Increased demand was encouraging with North Asia returning to the fold, increasing their purchases significantly, while South East Asia followed suit with larger purchase volumes.
What happened last week in dairy?
Milk powders
WMP prices dropped 0.6% with an average winning price of US$4125/t, with winning prices decreasing in all contracts on offer except contracts shipping in September. C3 took out the highest average price at US$4159/t; however, the range across contracts has widened with the nearest contract settling at US$4084/t to a range of US$75/t. Demand was weaker at this event, with the auction starting at a supply demand ratio of only 2.5 and dropping to <1.25 quickly.
Skim milk powder (SMP) prices increased 1% to finish the auction at US$4276/t. Prices in contracts one, and three through five lifted with C2 having no movement. C3 lifted the most at 2.6%, settling the highest with an average of US$4348/t. SMP was sold from the EU in C2 and NZ across the five contracts. There is a much larger premium being paid for NZ SMP over the EU, with US$119/t between the contracts. The spread has grown between SMP and WMP with a premium of US$124/t now being paid for medium heat SMP over regular WMP in C2.
WMP and SMP regional buying activity shows that North Asian buyers returned to the market, an anticipated result after their absence at the last event. North Asia bought significantly more WMP at this event and increased their purchases of SMP. On the other hand, South East Asian buyers purchased the largest volume of SMP at this event.
Cream group
Anhydrous milk fat (AMF) prices finished the auction 4.7% lower, settling at US$5913/t, falling below the recent US$6000/t floor price. Butter prices experienced their second increase in a row, up 2.4% to an average winning price of US$6213/t. This increase pushes milk fats further away from each other with a premium of US$300/t now being paid for butter over AMF.
As expected, a lot of opportune buying was seen at this event, with buyers who were not as active at the last event, making the most of the significant discount created by the previous auction. North Asian buyers secured the largest volume of butter at this auction; however, it was North American buyers purchasing AMF which really took the auction by surprise.
Cheddar
Cheddar prices had the largest drop of the day, down a massive 9.0%, with the average winning price of US$4,875/t, bringing cheddar down below that US$5,000/t floor price. This average is US$490/t lower than the previous auction, likely a result of the excess cheese in the market. This is also the first time cheddar has sat below US$5,000/t since November.
Cheddar was only purchased by North Asian, South East Asian and South/Central American buyers, with North Asian buyers securing the largest volume.
Milk price forecasts: $10/kg MS for most expectations
Global Dairy Trade (GDT) auction 310 resulted in a GDT index slide of 1.3%, but milk price informing commodity prices weren’t as heavily impacted as the headline index suggested; cheddar prices slid 9% for example. Even so, milk price expectations have eased, with the NZX Milk price forecast falling 21c/kg MS, with our forecast now sitting at $10.19/kg MS. It is important to note that the June GDT auctions are on the lower end of volume of product sold for the season, and thus the impact to milk price of these early auctions are much less than coming auctions. It is also important to note that the NZX milk price forecast leans heavily on the Dairy Derivatives market prices, which have been very volatile recently.
This means that confidence in this milk price remains low; however, helping to buoy our own milk price forecast confidence, Fonterra announced an updated milk price forecast today, shifting their forecast 50cents/kg MS higher. They also announced their earnings guidance for the current season, opening this range at 30-45c/share.
Other data points from around the wider milk market include the SGX-NZX Dairy Derivatives milk price future for the current season trading steadily above the $10.30/kg MS mark over the last fortnight. Added to the derivatives market, Australian processors are also ratcheting their own milk price forecasts higher. The entire market remains bullish for the current season. As mentioned below, milk supplies both in NZ and globally remain behind expectations, helping to keep milk prices supported currently.
NZ milk production drops, echoing export declines
DCANZ data shows a significant fall for milk production in May 2022, falling 6.8% year-on-year (YOY), with 92.893 million kg MS produced over the month.
This production is lower than the previous year, but higher than 2020’s figure, most likely due to lactations being extended to make the most of the high payout.
This figure also completes milk production in NZ for the 2021-22 season, which has now totaled 1,869m kg MS. This figure is 4.03% behind the previous season, which means that May’s milk production exceeded our forecast, helping to claw back some production for the season.
In response to lower milk production, total dairy export volumes for the month of May were down 19% YoY and year to date, down 11%. Total dairy export volumes for May were just 26,095mt. Of this, all commodities except AMF experienced declines.
Milk powders took the largest hit, with WMP and SMP down 24.7% and 21.7% YoY. Exports of milk powders into China fell significantly with lockdowns in China having had an impact on consumer demand and access to ports. WMP exports into China fell 66% YoY while SMP exports into China were down 51%. While China has no doubt impacted milk powder export numbers, South East Asia increased their purchases of WMP with a 5% increase and notable increases into Singapore, Vietnam and Indonesia. In addition, Algeria and the Middle East also significantly increased their purchase volumes.
While AMF exports increased a massive 57.9%, butter exports fell 19.1% with only 15,862mt exported. China was again the big driver here with a decrease of 45% in exports YoY. Additionally, other large buyers such as Saudi Arabia and Russia decreased their volumes. Australia did, however, pick up an additional 1000mt of butter YoY, likely a response to global supply shortage of the commodity and their own production declines domestically.
This figure put into context helps to understand how tight global milk production is; if total NZ milk production is down 4.03%, and NZ exports make up circa 30% of seaborne exports, it is clear to see that global exports are significantly lower.
