“The small increase in the milk price forecast was brought about by a slightly stronger NZX Dairy Futures market, which improved the price outlook for the remainder of the season,” AgriHQ dairy analyst Susan Kilsby said.
Price movements at the auction were minimal. A small fall in whole milk powder prices was offset by an increase in the butter price.
“Ahead of the auction there wasn’t a strong indication of which direction prices would move.” The NZX market indicated that WMP prices would continue to rise with an average price increase of 8% factored in for the two March GDT events.
However, the NZX market gave little indication of the likely movement in other commodities with futures contracts trading at similar prices to those achieved at the previous auction for skim milk powder, anhydrous milk fat, and butter.
“The uncertainty in the markets has largely been driven by a change in tack from Fonterra.
“Late last week Fonterra increased the volume of product to be offered on GDT over the coming months.
“This was a sharp turnaround from a month earlier when it reduced GDT volumes due to falling milk production.
“At the March 3 auction, however, Fonterra’s upward revision in volume applied only to WMP, which was reflected in the weaker prices achieved for this commodity,” Kilsby said.
Fonterra milk intakes in January were 2.9% lower than in the same month in 2014.
But official data for NZ, including all dairy processors, showed just a 1.25% reduction in milk production for the month.
“Milk intakes have not fallen quite as quickly as previously anticipated and Fonterra has replaced some of the product that was earlier removed from GDT.
“Buyers’ fears that NZ suppliers would not be able to meet demand have been dispelled somewhat.
“NZX Dairy Futures market prices were gaining ground until Fonterra’s surprise announcement that GDT volumes would be increased again. At that point futures prices eased back and further easing is likely to occur in the coming weeks due to the weaker GDT result.”
Despite Fonterra adding an extra 8300 tonnes to its GDT forecast volumes for the March to July period the amount of WMP on offer on GDT was still 40% below year-ago levels.
Cheddar was the biggest gainer at the auction, lifting by 11% to a weighted average price of US$3377/t, followed by SMP which rose by 7% to $2935/t. The other commodity to increase in value was butter, up 2% to $3912/t.
Both rennet casein and anhydrous milk fat declined by 2%, averaging $8694/t and $4237/t respectively while WMP traded 1% lower than the previous auction at $3241/t.
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