Tuesday, February 27, 2024

GDT result sees NZX adjust its FMP forecast

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So what happened at GDT?
Butter continues to hold a milk fat premium over AMF, though this has narrowed considerably.
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By Amy Castleton, NZX economist

Prices dropped again at last week’s Global Dairy Trade (GDT) event. 

The drop, along with falling dairy commodity futures prices, caused a hit to the NZX farmgate milk price forecast. 

Our forecast for the 2022-23 season is now down to $8.80/kg MS, with a range of $8.64-9.11/kg MS (based on variation in the NZ:US exchange rate or a 5% lift in commodity prices). 

There’s some chatter around currency supporting the current season’s milk price, but Fonterra’s hedging policy leads us to assume that most of this season’s currency effect has already been baked in. Therefore, current low exchange rates are more beneficial to next season’s milk price. 

SGX-NZX milk price futures are priced significantly higher than NZX’s current forecast, with the September 2023 contract last settling at $9.40/kg MS. The September 2024 contract is higher still at $10/kg MS. 

So what happened at GDT? Prices were down across the board. Whole milk powder (WMP) prices fell 4.4% and the forward curve became quite flat. 

Prices for contracts post-peak milk production were priced virtually the same as the nearer dated contracts. 

North Asia did buy a significant volume at this event and there was significant participation from South-Central American buyers as well. This demand was simply not at a higher price point. 

Skim milk powder (SMP) prices were down the most in percentage terms, falling 6.9%. Demand was light and we assume most buyers got the product they were looking for. 

Butter and anhydrous milk fat (AMF) prices were down 2.6% and 2.7% respectively. Butter continues to hold a milk fat premium over AMF, though this has narrowed considerably. Prices also remain very flat on the forward curve. 

Oceania milk fat prices are completely disconnected to global milk fat prices, with US and European butter prices still near record highs as the holiday period approaches.

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