Tuesday, March 5, 2024

Unexpected decline at GDT 326

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From a regional buying perspective, China has again dominated the auction but this had no influence on overall demand.
Milk powders both reported declines. Whole milk powder (WMP) decreased by 2% to an average of US$3264/t.
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By Alexandria Winning-Brown, NZX dairy analyst

Global Dairy Trade (GDT) 326 resulted in a decline to the GDT price index of 1.5%, with an average price achieved of US$3414/t. This auction was unexpected, with declines for both milk powders and anhydrous milkfat (AMF), while cheddar and butter reported increases. North Asia continues to take out the top buyer’s spot; however, it was South East Asia who drove butter prices up, while the Middle East purchased significant chunks of cheddar.

Milk powders
Milk powders both reported declines. Whole milk powder (WMP) decreased by 2% to an average of US$3264/t. WMP was sold in contracts one through five, with all contracts on offer declining. Prices moved between -2.8% in C4 and -1.5% in C5. Bidding round information showed demand for WMP backed off at GDT 326 with the supply demand ratio starting at 2.0, and taking nine rounds to drop below <1.25. C2 regular WMP undershot SGX-NZX Dairy Derivatives market expectations by US$60/t. 

The skim milk powder (SMP) price index eased 2.4% at last week’s auction to an average of US$2769/t. This result also saw C2 medium heat SMP decline to US$2,760/t, undershooting Derivatives expectations by US$110/t. SMP was again offered out of NZ, Europe and North America, however, North America once again did not sell any SMP on the auction. There is now a premium paid for EU SMP over NZ, US$45/t, a switch up from what we have seen at previous auctions and unsurprising given recent news of milk price declines in the EU, likely to affect milk production as they head towards their peak.

Cream group
AMF prices declined after last auction’s jump, down 2.6% to finish the auction at US$5447/t. AMF was offered across contracts one through five with all contracts experiencing declines. C1 experienced the largest decline, down 3.1%. Prices sit in a forward lifting curve with C1 the lowest at US$5407/t before lifting to US$5575/t in C5.

Butter prices had the largest increase of the auction for the commodity’s second consecutive event. The butter price index increased 3.8% to an average winning price of US$4922/t, inching ever so closely to that US$5000/t ceiling price, unachieved since September. C5 salted butter has lifted above US$5000/t to US$5005/t.

Cheddar
Cheddar prices also increased at GDT 326, up 2.5% to an average of US$5086/t, the first time the commodity has sat above that US$5000/t ceiling price since September 2022. Contracts have shifted into a forward lifting curve with C2 taking out the lowest average at US$4,926/t before lifting to US$5,365/t in C5.

From a regional buying perspective, China has again dominated the auction, purchasing the most WMP, SMP, and butter. While this was the case, they did little to influence demand, with South East Asia being the driver for butter demand increases, being the only region to increase their purchases of butter, while the Middle East really drove cheddar prices higher.

What else happened in dairy last week?

Dairy commodities lost a good chunk of the value they had gained earlier in the month at last week’s GDT event. Futures prices on the SGX-NZX Dairy Derivatives market have also eased off.

As a result, the NZX milk Price forecast has lost all the gain it made when it was last updated, and now sits back at $8.57/kg MS. The range is $8.50-$8.68/kgMS. This forecast includes off GDT sales adding circa four cents to the forecast, and our FX rate remaining at 0.6325NZD:USD.

Future direction still remains unclear. The Derivatives market continues to expect milk powder prices to lift. The forward curves for milkfats are a bit flatter; although in saying that, the anticipated lift in milk powders is not especially steep either. This suggests that those trading aren’t sure on where the market might go either.

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