Friday, March 29, 2024

Low milk supply fears give GDT price boost

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Fears of New Zealand milk production falling because of dry weather gave a boost to the Global Dairy Trade auction market, which rose 4.9%, including a 5.1% average rise for whole milk powder.
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The latest GDT market lift was the biggest at one event since late 2016. It included 8.8% for butter and 6.5% for skim milk powder.

Though milk supply might recover with repeated rain in dairying regions this month, Fonterra’s revised seasonal collection forecast of minus 3% had the effect of lifting commodity market prices.

A crazy combination of drought declarations and heavy downpours leading to floods was hard on NZ dairy farmers but stalling milk production was lifting product prices, ASB senior rural economist Nathan Penny said.

ASB now expects production to be 1% higher than last season, which underpinned its more optimistic payout forecast of $6.50/kg milksolids at the farmgate.

It thought Fonterra had overstated the production weakness.

“In particular, recent rain and a supportive milk price are likely to see production rebound later in the season.

“If we are right then firmer production later in the season may see dairy prices give back some of their gains,” Penny said.

Other commentators drew attention to the now-prevailing $US3000/tonne whole milk powder prices, providing the bedrock of a $6-plus payout.

After the GDT auction all WMP futures prices reset above $US3000, increasing an average of $150 or about 5%, AgriHQ dairy analyst Amy Castleton said.

The AgriHQ payout predictor gained 10c to $6.20 and the spot price rose 23c to $5.94.

A NZ dollar exchange rate of US73c was 2c higher than a fortnight earlier but Fonterra was assumed to have hedged the bulk of its 2018 sales at 71c, Castleton said.

Over the past two weeks the NZX Dairy Derivatives market price for 2018 milk futures rose 6c to $6.44 and milk futures for next season rose 10c to $5.90.

Slightly before the GDT event Fonterra said its NZ milk collection in December was down 6% compared with December 2016 and the total in the seven months of the season to December 31 was slightly lower than the previous corresponding period.

Conversely, its milk collection in Australia was up 27% in the six months to December 31.

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