Sunday, April 21, 2024

Banks revise forecasts as GDT improves

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Fourth lift in a row at global dairy auction, with all product categories making gains.
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ASB and Westpac have lifted their milk price forecasts in response to the latest GDT auction price rise.

The 4.3% rise saw ASB and Westpac adjust their forecasts to $7.35/kg MS and $7.25/kg MS respectively.

It was the fourth lift in a row at the GDT auction, with all product categories making gains.

Whole Milk Powder lifted 4.2% to US$3059/T. 

NZX Dairy analyst Alex Winning said the product has lifted over 20% in the last two months and has clawed back from a five-year low to respectable numbers in line with November 2020.

“Fundamentally, there isn’t anything shocking or noticeable for WMP at this auction; there is a slight forward lifting curve with steady increases through contract periods and a slight premium for instant,” she said.

Skim milk powder made a similar gain, up 4.3% to US$2659. AMF jumped 7.1% to US$5310, butter was up 2.9% to US$4940, cheddar lifted 0.2% to US$3,858 and lactose was up 0.2% to US$599. 

Westpac senior agri economist Nathan Penny said in the bank’s fortnightly Agri Update that the result shows that the feeling in the market has changed, indicating that the worst of this price cycle may be over. 

“Looking at sentiment, three things have helped turned the price tide. Firstly, prices hit very low levels, and this has led to increased buying interest, notably from the Middle Eastern and European buyers – after all, everyone loves a bargain. 

“Secondly, the declaration of an El Niño weather pattern has increased the risk of a drought and a contraction of supply later in the season. Lastly, oil prices have lifted over recent months, and this may have given further impetus to demand from Middle Eastern buyers.”

That said, Penny was still cautious, pointing out that there has been no material improvement in Chinese demand, and Chinese economic data is also inconclusive at this juncture.

This is a point also noted by ASB economist Nathaniel Keall, who said China was still not that active compared with its usual presence on global dairy markets. 

“The North Asian region has typically bought only around 25-50% of the WMP on offer since the beginning of June – roughly the same proportions of volumes it was purchasing this time last year during China’s zero-covid period,” he said in the bank’s Commodities Weekly publication.

Keall said the auction lifts had made that August fall look increasingly like a near-term floor. 

“All of the WMP contracts (stretching well into the season) have lifted, and the curve has been consistently flattish to slightly upward-tilting. 

“That’s a sign that underlying demand is indeed firmer and it isn’t only a near-term shortage or some other squeeze skewing the overall figure. That’s all good news for farmers in a season where that has been in fairly short supply thus far.”

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