Tuesday, February 27, 2024

NZX milk price forecast shifts again

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NZX reviews the week that was in dairy.
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By Alexandria Winning-Browne, NZX dairy analyst

With three consecutive price declines at GDT auctions, the NZX Milk Price Forecast has shifted significantly lower, with GDT 319 swiping another 30cents/kg MS from our forecast, pushing it down to $8.51/kgMS, with an estimate of FX sitting at 0.6390. 

We are concerned that this milk price forecast is overshooting currently, considering where SGX-NZX Dairy Derivatives are priced; we don’t agree with the current contango, or rising, forward curve. 

The milk price future for the current season has traded below the $9/kg MS mark for the first time since September 2021, but at the time of writing is trading at $9.02/kg MS.

So what happened last week in dairy? 

Global Dairy Trade (GDT) event 319 has resulted in another decrease to the GDT price index, down 3.9%, with negative results in all commodities except butter and cheddar. The global dairy market remains locked into a bearish market, with what seems like a rapid reversion to averages occurring. Consumer demand is light and continues to fall, 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, with the expectation that dairy will continue to trade down to price averages over the coming auctions.

WMP prices index declined a further 3.4%, with the average winning price now sitting at US$3279/t. This continues the trend of the lowest WMP prices in the last 12 months. Winning prices decreased across all contracts on offer with C1 declining the most, down 4.2%. The forward sales curve continues to lift, with C5 taking out the largest average at US$3412/t. This GDT sees the range between contracts remain tight, at US$164/t. Demand at the start of this auction was a little stronger than the last auction, with three rounds of the demand:supply ratio at 2.0. 

Skim milk powder (SMP) prices had their largest fall since July, down 8.5%, moving the index price to US$2972/t. This is the first time SMP prices have sat below US$3000/t since July 2021. Contracts moved between -7.9% and -9.7%, with the price range across NZ MH SMP only US$10/t. No MH SMP was offered from EU suppliers, with only Low Heat (LH) SMP on offer.

Regional buying activity shows that South East Asian/Oceania (SEAO) buyers performed the heavy lifting of WMP at this GDT, buying nearly half of the WMP sold. North Asia took a smaller than normal volume, while Middle Eastern buyers continued on their track of buying large volumes. North Asian buyers secured the largest volume of SMP, and looking at the bidding round data, they most likely secured all of the volume they were after. SEAO secured a similar, but smaller, volume as the previous auction.

Butter prices bucked the recent trend, and increased at this event, up 0.2%, with an average winning price of US$4868/t. Meanwhile, anhydrous milk fat (AMF) prices declined, down 1.7% to finish the auction at US$5562/t. This result sees butter sales contracts shift into a lifting sales curve, with C6 taking out the highest average, while AMF contracts shifted into backwardation, with C1 taking out the highest average. This paints a confusing picture of the future of milk fats, however, we do expect better price support for milk fats over the coming months considering the current consumption levels in Asian markets.

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