Tuesday, December 5, 2023

Analysts not sold on marginal lift in GDT prices 

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Latest GDT prices offer first relief in months, but broader recovery not expected ‘for some time’.
February whole milk powder import volumes resulted in a 31% YoY deficit.
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The 5.2% rise in whole milk powder prices in the latest Global Dairy Trade auction was the first since mid-May and the beginning of the current New Zealand dairy season.

Along with a 2.7% rise for anhydrous milk fat and a 1.1% rise for butter, the GDT price index of all products increased by 2.7%, a partial recovery after a long slide totalling 16% over seven fortnightly auctions and four months.

That slide had caused Fonterra to take $1.25/kg milkfat out of its seasonal forecast range, and pitched most dairy farmers into a loss-making position.

The average price paid for WMP in the latest auction was US$2702, within a range of $2630 to $2800, but the market remains low.

ABS economist Nat Keall said whether the dairy market has found a floor is still an open question.

“We still don’t anticipate a broader recovery for some time.”

The lift in WMP was stronger than the more modest increase anticipated by the futures market but comes after a 15% fall in prices over the season thus far.

The WMP gains came at the front end of the contract curve, where prices were at their lowest ebb after the previous auction.

“Contracts with shipment dates further into the future are still trading at, or even slightly below, the prices they commanded in mid-August.”

China remains the key to a sustained recovery in WMP prices, and a pick-up in that market doesn’t look imminent.

Keall thought the likely El Niño crimp in New Zealand milk production this season would not be influential; given the extent to which demand has softened, he anticipates the global dairy market will be comparatively well supplied.

ANZ agricultural economist Susan Kilsby said the slide in dairy prices since May has been arrested.

“While it may not be all positive sailing from here on, it does indicate the market is starting to take note of concerns of reduced milk production from New Zealand this season, and/or is seeing value at current prices,” Kilsby said.

“It looks like market participants are starting to realise that NZ milk production is likely to be constrained this year due to adverse weather and low returns.

“Some positivity surrounding China’s economy may have also contributed to the result.”

NZX dairy analyst Alex Winning said while a lift in prices is typically an indicator of trend, the market is yet to point in a clear direction.

“Prices have continued to bounce around, peak and trough over the last year, and with the inventory and supply story remaining supported globally and economic woes continuing to impact spending capacity, it is difficult to see a full rebound in prices in the near future.”

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