Dairy buyers overlooked the findings of dicyandiamide in New
Zealand milk to lift prices at GlobalDairyTrade to a 19-month high, led by
surges in milk fat and whole milk powder values.
In one of the most closely watched auctions in the auction
site's five-year history - after New Zealand's government revealed finding
traces of DCD, a toxic fertilizer residue, in dairy products – prices rose by
2.4%, their fastest pace in five months.
The result was a "little bit of a surprise", said Kyle
Schrad, risk management associate at FCStone's Chicago-based dairy division, not
that the market had been "wary of a decrease" in prices following the DCD
"It was a bit of a concern. People were a bit apprehensive
of how the auction would go the first time [after the DCD finding]," Mr Schrad
"But these results appear to suggest that it was more or
less a non-issue."
Fonterra vs Arla vs
Auckland-based Fonterra, the milk giant which runs GlobalDairyTrade,
last week sought to distance the auction from the DCD scare, saying that product on offer
for sale dated from periods outside those when a toxin was
found in New Zealand dairy product.
Signally, in skim milk powder, in which the auction sells
product from Denmark's Arla and US-based DairyAmerica besides from Fonterra,
the Fonterra lots performed significantly better, increasing their premium.
Skim milk powder prices overall rose by a modest 0.5% at
Tuesday's event, losing more of their – atypical - premium over whole milk
powder, which appreciated by 5.4% to $3,468 a tonne.
That closed the premium - attributed to robust interest in
skim milk powder from China, which has limited capacity itself for making the
product - to $86 a tonne, the lowest since October.
Anhydrous milk fat proved the strongest product, with values
soaring by 7.2% to an average of $3,500 per tonne, the highest since August,
and closing the discount of New Zealand product to its equivalent in Europe and
'Fallen off sharply'
The price rises also came a background of two important
industry trends – the first a seasonal decline in New Zealand output from a
high typically reached in October.
In fact, while latest industry data, for November, shows
output remaining unexpectedly strong, up 8.1% year on year at 2.85m tonnes, "market
chatter is that production has fallen off sharply over the last few weeks", Mr Schrad
While the South Island of New Zealand, the top dairy
exporting country, has received ample moisture, North Island have suffered a
deficit of 20% in some areas last month.
"Hot temperatures as
well has the lack of rainfall has contributed to the slowdown in pasture growth
in this island," Agrifax analysts said.
The second market dynamic in focus is Chinese import demand,
and its response to the coming - and aftermath - of the lunar new year celebrations
later this month.
"If China comes back with its inventories run low, there is
the potential to see sharply higher prices, coming at a time when New Zealand's
production is in seasonal decline," Mr Schrad said.