At the most recent event on November 17, the whole milk powder index sank 11 percent to US$2148 a tonne, its lowest level since September 1.
However, a pick-up in the NZX futures market over the past two days has pushed up the price of contracts between January and May, rebalancing the curve and suggesting the GDT whole milk powder index may bounce 6% at the next overnight auction on December 1, according to dairy futures advisory firm OMF.
The December whole milk powder futures contract last traded at US$2080, compared with January 2016 at US$2300, and May 2016 at US$2475.
“There’s generally a bit of a shift higher across the curve – perhaps the market over-reacted after the recent GDT and the whole curve went into what they call ‘backwardation’, where the front contracts are higher than the back contracts, so it’s been a bit of a correction,” OMF dealer Daniel Crawford said.
“That largely drove the shift in the curve and in addition to that, we have definitely seen some buying come in, not necessarily from a hedging perspective, perhaps from traders looking to take some profit on short positions that they had on in the market,” Crawford said, referring to “short” bets where traders speculate an asset will decline in value.
“There’s definitely more buying than selling in the futures at the moment, which could suggest that we might see some more demand,” he said.
Some buyers may be betting the risk of an El Nino drought will crimp future production, which could push up prices, he said.
Skim milk powder futures were also active, OMF said.