Wednesday, April 24, 2024

GDT price falls not yet a concern

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Global Dairy Trade prices for all commodities fell and the GDT price index lost 3.6% in the second April fortnightly auction.
On top of lower milk production, for the first time in several months, NZ’s dairy exports registered a big gain, highlighting even tighter supply. 
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The magnitude and breadth of the latest GDT price falls suggest that Omicron outbreak matters in China outweighed all other concerns, Westpac senior agri economist Nathan Penny says.

Global Dairy Trade prices for all commodities fell and the GDT price index lost 3.6% in the second April fortnightly auction.

Falling prices through weakness in demand were not counter-balanced by reduced milk production figures from around the seven main dairy producing regions of the world.

Whole milk powder prices lost 4.4%, skim milk powder was down 4.2%, cheddar down 3.9%, butter down 3.7%, lactose down 2.4% and anhydrous milk fat down 1.3%.

Analysts’ expectations before the auction were that prices for all commodities offered would fall compared with the first April GDT event.

Those expectations were based on trade restrictions in China because of covid-19 lockdowns, the escalating war in Ukraine and Sri Lanka’s economic crisis.

Fonterra moved 2000 tonnes of whole milk powder forward into the GDT offering to avoid inventory build-up.

The deteriorating demand factors led NZX dairy analyst Stu Davison to be bearish for the auction.

“The covid-19 induced lockdowns in China are having serious knock-on effects in the global dairy market, something that will likely take some time to completely work itself out.”

Falls in the GDT price index have now accumulated to 5% in the past three auctions, but that followed two months in which the market rose 20% into record levels for most products.

ASB senior economist Chris Tennent-Brown said there was no need to change the bank’s farm gate milk price forecasts of $9.50/kg milksolids for this season and $9.20 for next.

“Overall, the recent weakness in GDT events takes a little gloss off an outstanding period for prices but is totally understandable. 

“The declines also won’t stand in the way of a record milk price for this season and there is little information to be gleaned for next season’s prices from this GDT event.”

The magnitude and breadth of the latest GDT price falls suggest that Omicron outbreak matters in China outweighed all other concerns, Westpac senior agri economist Nathan Penny said.

Reportedly up to 400 million Chinese are under some sort of lockdown and it was not surprising that dairy demand and auction prices took a hit.

“We expect this price weakness to be temporary as the experience in other countries is that Omicron waves eventually pass.”

Therefore, Westpac stuck by its milk price forecasts of $9.60 and $9.25 respectively.

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