Monday, February 26, 2024

GDT recovery now pushed out to next year

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Fall in prices prompts rethink on supply-demand outlook,
Skim milk powder fell 5.2% to $2333 a tonne on the latest Global Dairy Trade auction, as did butterfat, with the butter index dropping 3% to US$4539/t.
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A third sizeable drop in Global Dairy Trade prices over the past month has prompted a rethink of the supply-demand expectation for the current season, and a 50c cut in the farmgate milk (miraka) price forecast by Westpac Bank, to $8.75/kg milksolids.

The first GDT for November resulted in a 3.9% fall in the price index, following 3.5% and 4.6% declines in October, and skim milk powder prices took a hammering.

They were down 8.5% and have now fallen 35% since the peak of the market back in April.

Whole milk powder fared a little better, down 3.4%, anhydrous milk fat fell 1.7% and butter and cheese rose slightly, up 0.2% and 0.9% respectively.

Westpac senior agri economist Nathan Penny said global dairy demand has weakened more than previously expected and the pressure is now expected to persist into the new year.

Looking further out, Penny picks demand to rebound and supply to remain weak, so he has begun predicting the 2023-2024 milk price at $10.

This excellent opening forecast is helped by the currently low value of the NZ dollar, enabling dairy exporters to buy foreign exchange in advance.

“Global dairy prices have been under pressure for some time,” Penny said.

“Over the past three dairy auctions, overall prices have slid by 11.5% and over the past year, prices have slipped by over 18%.

“These recent falls are both larger and have continued for longer than we anticipated.

“We had expected prices to have stabilised by now, if not started to show signs of a rebound.

“That is clearly now not the case, prompting our forecast revision.”

Penny picked a change around from February, when pent-up Chinese demand for dairy will reappear and global dairy production will still be weak.

Westpac expects NZ production to fall 1.5% this season, when Fonterra had been expecting an increase to recover the loss in volume in 2021-02.

ASB economist Nat Keall said demand concerns are now dominating the dairy market, with buyers not concerned about the negative supply data out of NZ.

ASB trimmed its milk price forecast by 60c from $10 to $9.40 in mid-October and the latest GDT news suggests more downside risk for that forecast, Keall said.

NZX dairy insights manager Stu Davison said even with NZ milk production running 4% behind last season, the demand side of the market has a steering wheel.

“We know that consumer demand is light and falling, resulting in buyers and traders not wanting to be stuck with excess stock.

“This lack of demand is not restricted to just the Chinese market, but further afield too.”

The Chinese yuan is at 15-year low point against the US dollar, trading at 7.3, right on the limit of the People’s Bank of China official fixing.

Although the NZD is also down against the US, the yuan weakness makes it more expensive for dairy buyers to purchase commodities that are traded in USD.

In the past month the NZD has strengthened slightly, up from a recent low point US 55.5c to 58.5c.

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