Thursday, March 28, 2024

GDT prices blow their top, milk prices follow

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One of the biggest single-event increases in the Global Trade Dairy (GDT) index may be the impetus for a buoyant dairy market that delivers $8/kg farm gate milk prices this season and next.
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The GDT index jumped 15% on March 3, to 1346, fuelled by a 21% increase in whole milk powder (WMP) and 13.7% in butter.

The market has risen 40% since the beginning of November, with four months of eight consecutive GDT index increases, and WMP is now 46% higher.

The latest GDT leap bears an uncanny resemblance to market behaviour eight years ago.

In March 2013, the GDT index had consecutive rises of 11.4% and 14.6% at elevated levels similar to those of today.

The index then spent 12 months above 1400, enabling Fonterra to deliver its record milk price of $8.40/kg milksolids for the 2013-14 season.

Westpac senior agri-analyst Nathan Penny was convinced by the latest GDT results to add 40c on his farm gate milk price forecast, now $7.90.

ANZ agricultural economist Susan Kilsby lifted her forecast by 50c to $7.70.

NZX dairy analyst Amy Castleton says the GDT activity followed by the reaction in dairy derivatives added 30c to her milk price forecast, now $7.95.

She says after WMP prices on the GDT platform rose US$750/tonne in one auction to average $4364, the WMP futures put on $500 across the board.

Butter futures have also soared, adding $900 for the March contract.

The September 2021 milk price futures jumped 25c and is now trading around $7.60; likewise the 2022 milk price contracts.

ASB analyst Nat Keall says the dairy market trend was for stronger prices and the magnitude of the gains regularly exceeded market expectations.

The latest GDT auction took 23 rounds and three hours to complete and some buyers were unable to secure the quantities they sought.

“Logistics disruption fears are here to stay, and they are motivating buyers to secure supply early even for shipments some way in the future to meet expected demand,” Keall said.

Chinese buyers dominated the WMP bidding.

Rabobank senior dairy analyst Emma Higgins says Chinese demand stemmed from high feed prices for its domestic dairy industry and local milk prices are near record levels.

“Throw in other factors like inclement weather in the northern hemisphere and port congestion and shipping delays and it makes the scramble on GDT somewhat understandable,” Higgins said.

She says it was possible there was more price volatility to come.

Kilsby says a decline in the volume of Fonterra milk collection may have prompted some buying activity on GDT before the market potentially tightens further.

The supply and demand factors driving the sharp increase in prices right now were difficult to explain fully and was therefore uncertain how long the run may last.

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