Thursday, May 19, 2022

GDT index drop largest in six years

Global Dairy Trade (GDT) event 307 has resulted in a drop to the GDT price index, plummeting 8.5%, with prices for all commodities dropping. While a decline was anticipated in the market with negative futures movements leading up to the event, the size of the decline was a shock. This is the largest index drop in over six years, with buyers having had enough of paying the high commodity prices of previous events. Neither milk fat stayed competitive, with massive price declines as buyers started at a demand-supply ratio of <1.25 and failed to push above it. North Asia did show up at this event, with declines largely driven by other regions. 

What happened last week in dairy?

Milk powders

Whole milk powder (WMP) prices dropped -6.5%, with an average winning price of US$3916/t, declining a massive US$588/t on average. Winning prices decreased across all contracts, with C5 decreasing the most at -16.8%. C5 took out the highest average price at US$5825/t, however, only having instant WMP on offer. The nearest contract is still priced on the lower end with an -8.1% decline, settling at US$3679/t. Prices are no longer flat across the first three contracts, with a range of only US$281/t between C1 and C3. 

Skim milk powder (SMP) prices have had their second decrease since July 2021, down 6.5% to finish the auction at US$4130/t.  Prices across all contracts fell with C2 and C3 decreasing the most at -6.7%. The nearest contract is still pegged on the higher end with C1 settling at US$4239/t. NZ SMP was sold for a premium of US$274/t, over EU SMP. The gap between SMP and WMP has continued to widen at this event, with a premium of US$560/t paid for medium heat SMP over regular WMP in C1.

WMP and SMP regional buying activity shows that North Asian buyers did turn up at this event, increasing their purchase volumes of both commodities, compared to the previous auction, however, less so than the equivalent event last year. South East Asia was the only other region to increase WMP and SMP volumes from the previous event albeit, after significantly reducing WMP volumes from the last event. Africa, EU, South and Central America and South East Asia/Oceania all bought more WMP than last year, while Middle East and North Asia reduced their volumes. 

Cream group 

The cream group was slow to get off the ground at this event, particularly anhydrous milkfat (AMF), with buyers unwilling to make a move off starting prices, showing resistance to where prices have been sitting and driving the large falls at this event.  

Anhydrous milk fat (AMF) prices finished the auction 12.1% lower, settling at US$6,008/t, a drop of nearly US$800/t from the previous event. All contracts experienced declines with C1 and C2 experiencing the greatest declines at -13.4%. C6 took out the highest price of US$6,389/t, a premium of US$524/t over C1.

Butter prices also experienced massive declines at this event, down 12.5% to finish the auction at US$5,807/t.  Prices across all contract periods experienced drops with C2 facing the biggest decline of -12.8%. Prices are flat across the contract periods with a range of only US$99/t. 

South East Asia/Oceania basically opted out of buying butter volumes at this event, down considerably compared to both the last event and last year. The Middle East also bought no butter at this event, driving the decline. North Asia made up for it, increasing volumes against last event and last year – but obviously wasn’t willing to pay. For AMF, volumes were down from the Middle East and Africa vs both last event and last year, but again North Asia made up the shortfall, increasing purchase volumes considerably on both comparisons. 

Cheddar

Cheddar prices declined for the second time since June 2021, down 8.6%, with the average winning price of US$5,652/t. All regions except North Asia reduced their purchase volumes of cheddar compared to the last event while compared to last year, South East Asia and North Asia both increased their purchase volumes. 

NZX milk price forecast

Another slide in the GDT has pushed the NZX milk price forecast even lower. The NZX farm gate milk price forecast has eased down to $9.21/kg MS, with the range tightening to $9.19-$9.25/kg MS. This is an 8c slide from the previous forecast. This midpoint is now 39c/kg MS below Fonterra’s forecast midpoint, indicating that it may be difficult for Fonterra to reach its midpoint. 

The NZX forecast for 2022-23 has dropped to $9.44/kg MS from a previous forecast of $9.71/kg MS. This forecast is based on an exchange rate of 0.699 US cents to the NZ dollar. Fonterra is due to make its opening forecast for next season at the end of the month.

US March exports increase again in March

March US dairy export volumes increased 1.7% year-on-year (YoY) and 0.7% year-to-date (YTD). From a value basis, US total dairy exports increased a massive 23% YoY in March. 

Milk powders continue to pull back with declines in export volumes for both whole milk powder (WMP) and non-fat dry milk (NFDM)/skim milk powder (SMP). WMP volumes declined 13%, with 55% declines going into South America. SMP export volumes declined 8% YoY in March with North Africa pulling back 97% YoY with only 238mt. This comes as access to North African ports reduce as the conflict in Ukraine puts pressure on the Mediterranean ports. From a value basis both milk powders increased, with WMP increasing 7% YoY while NFDM/SMP increased a massive 26% YoY. 

March milk fats and cheddar exports increased both from a volume and value basis as US exporters continue to chase higher priced export commodity sales. AMF and butter had huge volume increases, up 177% and 46% YoY in March, with exports into Mexico driving both of these increases. AMF and butter export values increased 31% and 69% YoY. 

Cheese export volumes increased 13% YoY with exports to Asia and Mexico increasing a massive 11% and 24% YoY.

Southland bounces back

The start of April saw Southland plunged into a drought, with river water levels the lowest they’d been in over a century. However, over 300mm of rain in the last three weeks has seen the region’s pasture improve. 

Southland has almost completely moved out of Niwa’s drought index, with parts of the region sitting at -0.75 on the index. The region also now sits close to average soil moisture deficit around the 30mm deficit mark.

Reports out of the region suggest that autumn planting is now mostly complete, with some farmers having completed planting before Easter. Soil temperature reports around 12degC, while air temperature is sitting around 18degC.

Despite the unfavourable spring harvests, farmers and distributors will welcome the turn around for this autumn season.

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