Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
The GDT price index rose 2.3% compared to the previous auction. Whole milk powder (WMP) price was up 2.9% to US$3207/MT. Butter was up 9.9% and cheddar 6.9%.
Kelly Eckhold Westpac’s chief economist in NZ says the WMP price result was in line with their expectations.
“The futures market had pointed to a WMP price rise of around 3% ahead of the auction, and we had also pencilled in a 2.3% rise last week,” says Eckhold.
Prices have now lifted by around 21% since this year’s low in August. Overall prices are now down just 3% on a year ago, 7% below their 5-year average levels and broadly in line with the 10-year average.
Following the lift in dairy prices, Westpac has lifted its forecast milk price for the season to $7.50/kgMS, bringing it in line with Fonterra’s forecast mid-point.
Eckhold says that expectations of reduced production data in NZ and offshore may still be supporting prices.
On the demand side, last night’s auction saw improved demand from China and solid support from Southeast Asian buyers, he noted.
“We remain cautious on prospects for the Chinese economy and associated Chinese dairy demand - recent data confirms ongoing deflation in consumer and producer prices in China.
“Previously, we had seen some upside risks for the milk price outlook given the stronger run of auction outcomes since August.”
