The futures market is betting whole milk powder prices will rise at the Global Dairy Trade auction this week.
At the last GDT auction two weeks ago the headline price index jumped 3.2% following four consecutive declines.
The average price for whole milk powder, which has the most impact on what farmers are paid, gained 1% at the last auction and the futures market is picking a further 1.5% gain at this week’s overnight auction on Tuesday, on expectations supply may be dwindling while demand holds up.
“The futures market is picking another lift at this week’s auction on the back of the last one,” said HighGround Dairy global dairy consultant Stuart Davison. “Buyers are starting to realise that it might be a bit tight trying to get their hands on milk powder over the next few months, so that’s driving a little bit of price appreciation.”
He noted that Algeria, the world’s second-largest importer of milk powder after China, is seeking more supply through its Government tender process.
“They’ll consume a little bit more whole milk powder out of the world market and tighten things up a little bit,” Davison said. “We are moving back towards a tighter supply and demand balance and there’s a potential we are going to flip over a little bit into an undersupply story.”
The outlook for Chinese demand was becoming more positive after the country’s Covid-19 restrictions lifted and growth improved, but there appeared to be an overhang of inventories which had be worked through before demand for whole milk powder returned to historical volumes, he said.
Fonterra has forecast a farmgate milk price of $8 to $8.60 per kilogram of milk solids for this season, with a midpoint of $8.30 per kgMS, which is the price farmers are paid off.
Davison noted the futures market was pricing it a little lower at $8.27 per kgMS but said that could rise to meet Fonterra’s midpoint forecast on a positive auction result this week.
Dairy products are New Zealand’s largest commodity export.