Friday, March 29, 2024

WMP prices remain strong

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Whole milk powder (WMP) prices took a step backwards and dragged down the Global Dairy Trade (GDT) market by 3.8% at the second March auction. WMP prices fell by 6.2% after the dramatic rise of 21% in the first March auction and butter dropped 2.8% after the previous rise of 13.7%.
The costs of some imported farm inputs have come off the boil in recent months but ‘farmers are likely to see sizeable increases in their operating costs over the coming years’, says senior agri economist Nathan Penny.
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The GDT index fell from 1346 to 1295, but it is still higher than at any time in the past seven years, dating back to April 1, 2014.

Dairy market analysts say that on March 17 GDT prices took an understandable reduction after one of the biggest single-event increases in more than a decade.

Although, the latest GDT results did little to change the overall dairy market picture.

“In the short-term we expect dairy prices to remain high, albeit volatile,” Westpac senior agri-economist Nathan Penny said.

Market prices are 40% higher than a year ago, including WMP, which is 46% higher and is now over US$4000/tonne.

“Dairy markets remain tight, with high prices a function of demand outstripping supply,” he said.

“Also, global supply chain disruptions and the approaching seasonal lull in NZ production continue to add to the upward price pressure.”

Penny expected some moderation of prices into the second half of 2021 and the beginning of the NZ peak milk season.

In the meantime, he was sticking with a $7.90/kg forecast farm gate milk price for this season and $7.25 for next season.

ASB economist Nat Keall increased his prediction from $7.40 to $7.60, which is also the mid-point of the new Fonterra forecast range of $7.30 to $7.90.

Fonterra increased its forecast by 40c/kg after the extraordinary March 3 GDT results.

He injected a note of caution into his analysis of the March 17 GDT event.

“The fact that WMP prices have moved much more dramatically than other products over the past auctions speaks to the fact that while underlying demand for dairy products remains high, shipping fears and the need to reliably secure product for crucial infant formula in the near term are influencing the figures,” Keall said.

“At a certain point, there remains the risk that China will have built sufficient stockpiles and start to take its foot off the accelerator.

“The timing of such a move remains highly uncertain, and the re-entry of other buyers into the market may help offset the price impact.”

Rabobank senior dairy analyst Emma Higgins pointed out that 20% more WMP was offered at the latest GDT event compared with the previous one.

The average $4000/t level for WMP was a good result and global demand and supply dynamics supported a strong milk price, and Rabobank remained happy with its recently revised $7.80.

“At a broad level, we think that the expensive cost of producing milk (and WMP) in China, overlaid with the complexity of global shipping disruptions, alongside modest global milk production growth lends itself to elevated WMP prices over the coming months,” Higgins said.

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