Friday, March 29, 2024

Waiting for a wave

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Dairy traders around the Pacific are watching the economic effects of the covid-19 pandemic to see how second wave shutdowns might affect supply and demand and commodity prices.
Skim milk powder fell 5.2% to $2333 a tonne on the latest Global Dairy Trade auction, as did butterfat, with the butter index dropping 3% to US$4539/t.
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For example, Singapore plunged into recession during the April-June quarter as it recorded an annualised 41.2% fall in gross domestic product from the first quarter.

Numidia dairy commodities trader Joris Goebbels said that was the worst GDP number ever recorded in Singapore, which was like a canary for other economies because of its almost total reliance on trade and tourism.

He was speaking during the latest twice-monthly NZX Dairy Derivatives webinar on the prospects for dairy commodities.

Interfood derivatives unit leader Nick Vanderkolk, also based in Singapore but currently in Auckland, said traders are trying to pick up economic signals for dairy supply and demand and investment decisions by processors and customers.

An example he used was increased home consumption of dairy fat products in New Zealand and Australia but not so much in southeast Asia.

Pacific Dairy Ingredients managing director Nigel Van Den Bosch, of Melbourne, normally based in Shanghai, said China’s demand for whole milk powder is a big factor in a field of unknowns.

It was a surprise to dairy traders that NZ whole milk powder prices shot up 13% at the July 7 Global Dairy Trade to achieve a range between US$3200 and $3500/tonne.

“Chinese distributors were short because of some delays in shipping and the Fonterra offering of WMP was not large,” he said.

The three webinar participants think China’s demand for WMP will wane as the NZ peak milk season progresses.

Vanderkolk does not expect strong forward contracting while all commodity indices are dropping and as GDT volumes ramp up.

He forecasts more hand-to-mouth buying among WMP customers and said recent higher prices partly reflect a safety-stocks approach by large users guarding against supply chain problems.

Van Den Bosch suggests the economic effects of the pandemic and slowdown in trade should create more demand for price hedging products like futures and options.

Goebbels is watching the United States for economic impacts, the trading results of the quick-service restaurants and the movement of some products to cheaper versions for in-home cooking.

“Cheese prices in the US are high and being supported by the government but what happens when a second wave of shutdowns hits restaurants and stadiums,” he asked.

Traders said that unlike dairy farmers they don’t fear price volatility because their businesses are based on analysing the markets and providing options for their clients. 

MORE:

nzx.com/markets/nzx-dairy-derivatives/webinars-2020

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