The mood of the international dairy market has changed in a positive way for commodity sellers, as the results of the latest Global Dairy Trade auction show.
NZX dairy analyst Stu Davison said the mood shift indicates the market might follow the same path as this time last year, when it started to rise steadily after bottoming out in mid-August.
The GDT index rose 16% from mid-August until the Christmas-New Year break.
This year the GDT price index rose 2% in the second September auction, after the 4.9% rise earlier in the month.
Anhydrous milk fat was up 4% and whole milk powder up 3.7%, followed by cheddar at 2.1% and slight falls in price for butter and skim milk powder.
Davison said the futures market had anticipated a 4% rise for whole milk powder and was close to being right.
A further 5% across the forward curve would see physical prices at US$4000/tonne by the end of the year, where they were in December 2021.
The WMP average is now $3733, up 9% since mid-August.
As the biggest-selling dairy commodity for New Zealand, WMP is underpinning the $9-plus forecasts for this season’s farmgate milk price.
Demand in key markets is firm but Davison is not yet convinced it is solid.
“Leaning on supply and demand fundamentals again, as our dairy season rolls on, if NZ milk supply doesn’t hit the marks expected of it at the current price points, then the market will likely keep shifting higher.”
Echoing that sentiment, Westpac senior agri economist Nathan Penny said the latest GDT result is in line with expectations of a 4% lift in WMP prices.
Milk supplies globally are weak right now and July, August and September in NZ are reportedly tracking about 5% down, Penny said.
While NZ supply is expected to regain the 4% it lost last season, there are now clear downside risks to that forecast.
Reflecting that supply picture, along with support given by the NZ dollar, Penny said there is upside risk to his $9.25/kg milk price forecast.
