Thursday, March 28, 2024

Milk prices head towards mid $7

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Skim milk powder prices were the star of a very buoyant Global Dairy Trade auction last week, setting their highest level in more than four years.
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Fonterra’s SMP offerings reached US$3005/tonne for February delivery and averaged $2951 across all delivery periods and product descriptions.

The New Zealand products achieved 10% more than United States offerings and 6% more than those from Europe.

Rabobank dairy analyst Emma Higgins said Fonterra’s provenance and reputation are consistently bringing premium prices now that the true market for SMP is not influenced by the former European Union stockpile.

“That older product in stockpile created a demand for fresh, premium products out of Oceania, which has now carried forward to the present.

“Strong preference remains for NZ SMP with the most-recent GDT price jumping almost 7% to US$2924/tonne.  

“Buyers will have been looking for cover as we move past the seasonal peak and product available for purchase reflects this.  

“SMP offer volumes for the GDT platform drop off considerably next month with a 15% decline in offer volumes forecast for the December events.”  

Higgins said an outcome of the higher SMP prices is a smaller spread between fat and protein product prices.

The gap between whole milk powder and SMP prices is narrower than at any time since 2016.

SMP prices have risen 45% in the past 12 months while WMP prices increased 23%.

In the latest GDT event the price index rose 3.7%, the best gain since last January. WMP prices rose 3.6%. butter milk powder was up 5.4%, rennet casein up 5.1% and anhydrous milk fat 2.6%.

As the biggest-volume dairy product we export, rising WMP prices are good news for the farmgate milk price, ASB senior rural economist Nathan Penny said.

His $7/kg MS forecast now has upside potential and is being reviewed, as is Rabobank’s $7.15.

“Global dairy supply remains tight and it now appears previously firm NZ production growth is starting to soften.

“If production growth does continue to slow as we expect then we anticipate global dairy prices will firm further over the remainder of 2019.”

Westpac’s head of NZ strategy Imre Speizer agreed the WMP upwards momentum is now firm, having risen nearly 10% since the start of gains in July and being at a level not reached for two years.

“NZ milk collections, which showed promise over the mild winter, have slowed slightly.

“A cooler-than-usual spring means that October probably failed to match the pace of last year.

“Meanwhile, global supply remains constrained and the implication from a supply perspective is that prices should at least remain firm.”

The jump in the GDT index and the reaction in the dairy derivatives market resulted in a 17c increase in the NZX milk price forecast to $7.41.

The NZX spot price has shot up 26 cents to $7.90/kg MS. The spot price indicates what the milk price would be if November 5 GDT prices were achieved over the entire dairy season at current exchange rates.

The milk price futures contract for September 2020 last settled at $7.38.

These numbers are strong indicators for a milk price in the mid $7.

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