Wednesday, December 6, 2023

GDT upswing takes a pause

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Prices stutter, but not enough to cause a rethink on farmgate forecasts.
NZX takes a look at the week that was in the dairy industry.
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The two-month upswing in Global Dairy Trade prices has halted in the first auction of November, but only with a small downwards movement.

The GDT index fell by 0.7% after four consecutive fortnightly increases of 2.7%, 4.6%, 4.4% and 4.3% respectively.

Prices for four of the six dairy commodities offered rose while whole milk powder fell by 2.7% and butter was down 1.6%.

The halt in upward momentum will not cause dairy analysts to reduce their farmgate milk price forecasts, having lifted their predictions to around $7.25 earlier in October.

That is also the midpoint of Fonterra’s forecast range $6.50 to $8/kg milksolids, which was raised 50c a month ago.

NZX analyst Cristina Alvarado said the latest GDT results were a surprising mixture, especially the 2.3% increase for skim milk powder and the 3.1% increase for anhydrous milk fat when butter had a slide.

“With a general bearish sentiment, we got some bullish results, including WMP which went down for the first time in the past four events.”

ASB economist Nat Keall said a stronger patch of New Zealand milk production figures in September may have helped stifle WMP prices, along with a background of weak consumption.

“The upward kink in the WMP contract cure implies that buyers are still keen to ensure continuity of supply further into the season.

“Given projected El Niño conditions in NZ and the pressures on farmgate margins, NZ dairy production can still underperform during its peak production months.”

Keall said economic growth among major dairy importers is still anaemic as the season draws to a close – with the outlook considerably below average in the case of China. 

“This is not a recipe for strong global dairy consumption.”

Westpac senior agri economist Nathan Penny said markets had been factoring in an El Niño drought and the September milk production lift of 1.3% came as a surprise.

“In our view, this has been overdone, as water tables remain high and farmers have ample feed to mitigate any drought effect.”

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