Tuesday, February 27, 2024

Significant lack of demand at latest GDT event

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Winning prices decreased across all contracts on offer.
The price retreat of WMP futures on the SGX-NZX Dairy Derivatives, the NZX Milk Price Forecast for the 2022-23 season has slipped 33c/kg MS.
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By Stuart Davison, NZX dairy insights manager

Global Dairy Trade (GDT) event 317 resulted in a drop to the GDT price index, down 3.6%, with prices dropping across all commodities due to a significant lack of demand arriving at this auction. 

From a regional spread point of view, a normal, albeit slightly light, number of participants arrived at this auction; however, ridiculously low demand punctuated the initial stage of bidding, which eased substantially by round two for most products, and had almost evaporated by the third round of bidding for all products. 

Demand to supply ratios at this auction were almost half of what arrived at the previous auction. As a result, volume sold as a percentage of offer volumes was significantly lighter. Participation from South East Asian, Middle Eastern and Latin American buyers continue to punctuate GDT auctions, amid the comparatively light demand from China.

Milk powders
Whole milk powder (WMP) prices dropped 4.0% to an average of US$3573/t. This is the second-lowest average price for the commodity in the last 12 months. Winning prices decreased across all contracts on offer. C1 declined the most, down 4.4%, and nearly to where it was two events ago. The sales curve is still rising, with C5, or product to ship in March 2023, taking out the largest average price at US$3781/t. This GDT saw the range widen again between contracts, with US$221/t between the March and December contract. Bidding round information showed a big drop in demand. 

Skim milk powder (SMP) prices decreased again at this event, down 1.6% and dropping below US$3500/t for the first time in 11 months to an average price paid of US$3497/t. Prices in all contracts except C4 declined, with movements between -2.3% and 0.4%. C4 had the highest average of US$3477/t, US$77/t higher than C2, which settled the lowest. SMP was sold from the EU in C2 and NZ across the five contracts. The premium flipped for NZ SMP over EU with US$30/t being paid for C2 medium heat NZ SMP over the same contract out of the EU. 

WMP regional buying activity shows that sales were mostly normal. North Asian and South East Asian buyers secured similar volumes of WMP as each other, while Middle Eastern buyers secured a little more WMP than at the previous auction. South/Central American buyers also increased their buying volume. Southeast Asian buyers secured the largest volume of SMP at this auction, more than the seasonal increase. European buyers chased down a significantly larger than usual quantity of SMP at this auction. North Asian buyers bought a quarter less SMP than at the previous auction.

Cream Group 
Anhydrous milk fat (AMF) prices finished the auction 1.7% lower, settling at US$5811/t. Butter prices decreased significantly, down 7.0% to an average winning price of US$4983/t. This result closes the milk fat value gap down, with milk fat value parity only US$160/t, removing the massive premium that butter has held for the last six months. 

AMF purchase volumes were unusual, with less global participation than normal. Southeast Asian buyers secured the most AMF, while North Asian and Middle Eastern buyers secured more than the previous auction. Butter purchases were dominated by North Asian buyers again, securing almost two thirds of the butter, but not bringing enough demand to chase prices higher. North Asia continues to secure the vast majority of GDT butter.

Cheddar prices also decreased at this auction, down 3.8%, with the average winning price also dropping below the previously set US$5000/t floor price, down to US$4966/t. This price fall follows a reduction in offer volumes of GDT cheese, which was expected to keep price supported. North Asia soaked up 45% of the cheese sold. 

Milk price forecast 
Following a blow to dairy commodity prices at Global Dairy Trade (GDT) event 317, and the following price retreat of WMP futures on the SGX-NZX Dairy Derivatives, the NZX Milk Price Forecast for the 2022-23 season has slipped 33c/kg MS, down to $9.31/kg MS, with the current range sitting at $9.13-$9.67/kg MS. 

This forecast is manipulated with a NZD:USD exchange rate of 0.6390; without this FX manipulation our forecast plummets to $8.96/kg MS. The recent FX environment and movement in commodity prices recently likely lead to Fonterra’s FX for the full year being closer to the 0.6390 mark than 0.6600 mark, in our opinion. 

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