Whole milk powder prices surge to 2016 high

03.08.2016

Whole milk powder prices at GlobalDairyTrade auction site soared 9.9% to their highest level of this year, giving hope that the rally in dairy prices was finally start to pick up steam.

Dairy prices overall across the GDT auction, which is run by New Zealand milk co-operative Fonterra, were up 6.6%, with the strongest results seen in benchmark whole milk powder.

The average price of whole milk powder futures increased by $186 a tonne, to $2,265 a tonne.

This is the sharpest price increase in nine months.

Physical follows futures

The increase in prices follows a rally in New Zealand whole milk powder futures.

September whole milk powder futures on the New Zealand futures are up 12.7% since the last trading event, compared to a 10.4% rise for September whole milk powder contracts at the GDT.

"Auction results though have tended to undershoot futures pricing of late though," noted Tobin Gorey, of Commonwealth Bank of Australia.

Bullish speculators

Speculators on the futures market continue to be much more bullish than bidders at the GDT auctions over the longer term.

For example, whole milk powder for December delivery was sold for an average of $2,334 a tonne, some $90 a tonne cheaper than the same contract is trading on the futures market.

 "We continue to expect that milk prices will gradually recover as NZ output contracts throughout the season," Mr Gorey said.

No end to Kiwi pain

On Monday, Fonterra announced that it would maintain its opening 2016-17 farmgate milk price forecast at NZ$4.25 per kilogramme of milk solids.

This could be interpreted as a bullish signal, in implying that New Zealand farmers, most of whom are Fonterra members, have little incentive to end the slowdown in production in the world's top milk exporter.

Fonterra has forecast a 3% drop in New Zealand milk output in 2016-17.

A record 520,705 cows were slaughtered in the three months through June, according to Statistics New Zealand, up 11% from the same time last year.

And the latest figures for EU milk production, show slowing milk production slowing down in May, rounding out a picture of a tighter world market.


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