Tuesday, February 27, 2024

Dairy prices dip again at GDT auction

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But sharper cheddar price whets appetite for turnaround in demand.
The price retreat of WMP futures on the SGX-NZX Dairy Derivatives, the NZX Milk Price Forecast for the 2022-23 season has slipped 33c/kg MS.
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Dairy values dropped for the fifth consecutive time at the latest GDT auction, with the price index falling 2.9%.

Whole milk powder (WMP) prices fell 3.5%, with the average price now sitting at US$3417 a tonne. AMF had the auction’s biggest fall, down 9.8% to US$4990/T.

According to NZX, the AMF decrease saw its average price fall below butter with an average premium of US$214/T now being paid for butter over AMF.

Cheddar prices had the largest increase of the auction, up 4.2%, with the average winning price at US$5005/T. Butter lifted 0.2% to average US$5204/MT and SMP was up 0.1% to average US$3524/MT.

NZX dairy insights manager Stu Davison said while the overall decline in the price index was no surprise, the lifts in cheddar, SMP and butter were, with most expecting these categories to fall.

“This price decline isn’t at the same rate as the previous handful of auctions, with decent demand arriving at the beginning of the auction, and sticking around for three rounds, which hasn’t happened recently; almost a glimmer of demand returning for WMP,” he said.

He called cheddar the star of the auction as it made the largest price leap of all the products and the first decent rise since April, excluding the minor gain made in July.

Similar to the previous auction, North Asian buyers purchased the most overall dairy at this auction, bidding and purchasing most of the WMP along with Southeast Asian and Middle Eastern buyers.

“It would seem the market is still keen to secure the product, just not willing to chase prices more than required,” he said.

Southeast Asian buyers also drove the SMP purchasing and European buyers were active in both WMP and SMP purchases. Davison said this is a sign of where the milk powder market is in the European Union. African buyers were the most notably absent buyers, buying next to nothing at this event.

“For me, this event is relatively positive. It seems like a very different auction to that of the last four events, and definitely different to the last 10 auctions. As supply of commodities on the GDT platform seasonally increase, this will be an interesting trend to watch: has the market finally scratched some direction from somewhere?

Westpac senior agri economist Nathan Penny said the auction prices sit 3.4% and 2.7% above the five-year average for overall and WMP prices, respectively.

He said he expects prices to continue to remain soft over the next month, but then regain some lost ground and strengthen into the end of the year.

ASB economist Nat Keall said prices had undergone a correction over the autumn and winter, but the fundamentals continue to suggest prices will regain ground over the coming months. 

While WMP price indices had slid 30% since the beginning of March, which had pushed the overall GDT index lower by a similar magnitude, it is not dissimilar to the trajectory seen last season, when prices recovered over the spring and summer.

“There’s no guarantee history will repeat, but it’s a reason to be cautious and focus on broader demand and supply dynamics for signals,” Keall said.

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