By Alexandria Winning-Browne, NZX dairy analyst
Global Dairy Trade (GDT) event 315 has resulted in an increase to the GDT price index, up 4.9%, with positive results for every major commodity. Large demand is the key driver here, with buyers arriving to the auction with large volumes of demand. South East Asia’s (SEA) heavy lifting at this event can’t be overstated enough, with significantly more than average volume purchased at this event, and significantly more than North Asia. This signals two different market forces: an overall lack of product in the wider market and the ongoing issues within the Chinese market continuing to impact their demand requirements. This physical agreement with futures expectations provides the market with some clear direction, something that hasn’t been apparent for the last 10 auctions.
What happened last week in dairy?
Milk powders
Whole milk powder (WMP) prices increased 5.1%, with the largest increase in WMP prices since June. The average winning price of WMP has jumped to US$3610/t. Winning prices increased across all contracts on offer. C5 took out the biggest gain, up 8.2%, also taking out the largest average at US$3697/t. This GDT sees the range between contracts widen; at US$153/t; the market is willing to pay more for WMP in December. Demand returned with the demand/supply ratio starting at 3.5; however, taking eight rounds to drop below.
Skim milk powder (SMP) prices also increased at this event, up 1.5% to an average price paid of US$3575/t. SMP was sold in C1 through C5, with prices in contracts two onwards moving higher. C5 had the largest increase, up 2.1%, also taking out the largest average at US$3650/t. SMP was sold from the EU and NZ with a premium of US$165/t paid for NZ C2 medium heat. SMP remains at a premium to WMP, concreting expectations and plans by processors in NZ to produce more SMP+milk fats this season.
Regional buying activity shows that South East Asian/Oceania buyers performed the heavy lifting at this GDT, buying the largest volume of milk powders at this auction, and the most volume over all, eclipsing North Asian overall purchases by almost half again. North Asian buyers purchased their 13th smallest volume of WMP at a GDT event, however, increased their purchase volumes compared to the previous auction, and compared to the equivalent event last year. Middle Eastern buyers bought the second-largest volume of WMP at this auction, while EU buyers bought another large volume of SMP at this auction. Middle Eastern buyers purchased more than expected, considering the easing of oil prices over the last four weeks
Cream group
Butter prices also increased, up 3.0%, with an average winning price of US$5369/t. Meanwhile, anhydrous milk fat (AMF) had the largest increase of the event, up a massive 13.9% to finish the auction at US$5677/t. This result reverts the cream group with AMF now priced higher than butter, but milk fat value parity is not yet met, with butter holding a milk fat premium still.
Butter purchases were dominated by North Asia, securing almost half of the butter sold at this auction. AMF purchases were spread across the regions, with SEA buyers purchasing the most. North Asian buyers bought significantly less AMF than at the previous event. Notably was the return of North American buyers to the milk fat section, a result of a tight milk fat market in the US.
Milk price forecast
As a result of the increases at GDT 315, along with increases in dairy commodity futures expectations over the last few weeks, milk price expectations have increased, with the NZX milk price forecast increasing 38cents/kg MS. Our forecast now sits at $9.42/kg MS, with the range of $9.21-$9.86/kg MS.
This increase to the forecast is no surprise when looking at the direction that the derivatives market has moved over the last few weeks with the futures market anticipating commodities to lift. It is worth noting that the Milk Price futures market is still pricing the 2022-23 season higher than our forecast, currently trading at $9.65/ kg MS. This implies greater gains yet for dairy ingredients, greater than the current futures have priced in.
