Saturday, April 13, 2024

Dairy leaps into peak season

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Dairy prices have jumped up 4% in the latest Global Dairy Trade (GDT) auction in a very timely rise for the farm gate milk price as peak spring production begins. The 3.3% increase in whole milk powder (WMP) prices underpinned the first substantial market lift for six months.
Jarden’s head of derivatives, Mike McIntyre, said the medium-term milk price outlook is around $8.50 and milk price futures contracts for next season and the following season are trading at that level.
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Dairy prices have jumped up 4% in the latest Global Dairy Trade (GDT) auction in a very timely rise for the farm gate milk price as peak spring production begins.

The 3.3% increase in whole milk powder (WMP) prices underpinned the first substantial market lift for six months.

Skim milk powder (SMP) was up 7.3%, butter 3.7% and anhydrous milk fat (AMF) 3.1%.

“The magnitude of this lift (4%) was much more helpful than that extraordinary 15% jump in March, which was disruptive,” Jarden’s head of derivatives Mike McIntyre said.

The new market strength was critical timing for the farm gate milk price forecasts as peak milk approached.

“There was very good buy-side support and for WMP the Chinese participation was well down,” he said.

“Broad-based demand from South East Asia and the Middle East gave cause for optimism and the auction time was quite drawn out.

“Fonterra took some WMP volume off the GDT, saying that demand and prices were good elsewhere in Asia.”

NZX dairy analyst Stu Davison says buyers were there in force with their elbows out.

“Constant messages from NZ processors of tighter supply may have been heeded and GDT offer volumes are much lower than this time last year,” Davison said.

“This auction will no doubt light a fire in the global dairy industry.

“Buyers that missed out at this auction will be scrambling to secure prices and product, while sellers will be looking at how this changes stream returns in the short-term.”

Westpac senior agri-economist Nathan Penny says global dairy markets appear to have cleared the surge in NZ milk production in the autumn and the coming spring peak would now set the prices in either direction.

“We see the global dairy market as being largely balanced at this point, with prices settling at a healthy level.”

Therefore, Westpac maintained its farm gate milk price forecast of $7.75/kg milksolids but, being early in the season, there was a wide range of outcomes possible on either side of that figure.

ASB economist Nat Keall says the stability of GDT WMP prices at 20-30% higher than at this time in the past three seasons meant that this auction’s results weren’t a rush of anxiety.

“It is a signal buyers expect dairy demand to remain solid and are keen to avoid missing out given the tighter WMP supply of late,” Keall said.

Being the first GDT auction of the spring and the first for three weeks, the outcome was a good signal of the market.

Buyers who missed out this time could be more aggressive in a fortnight.

ASB maintained its milk price at $7.90, saying the season was expected to remain very strong in an historical sense.

The NZX milk price estimate jumped 39c to $8.04 after the GDT result and the futures markets movements before and after the auction.

The NZX milk price range is $7.89-$8.42; the bottom of this range works on the NZD-USD exchange rate increasing 1.5c over the season, while the top end of the range assumes commodity prices increase 5% on average over the rest of the season.

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