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Dairy prices jump at GDT, led by surge in skim milk powder to four-year high


Dairy prices jumped at GlobalDairyTrade, led by a spurt in skim milk powder prices to a four-year high, amid ideas of resilient Chinese demand, at a time of modest growth in many major exporting countries.


The GlobalDairyTrade (GDT) index rose at Tuesday’s event by 3.7%, its fastest pace of increase in eight months.


The gain reflected in part strong headway by rennet casein, which appreciated by 5.1% to $7,175 a tonne, after Fonterra, which sells most GDT product, said it was cutting by 750 tonnes the amount of the dairy protein it was selling through the auction over the next three months.


Prices of whole milk powder (WMP), which accounts for the majority of product sold through GDT, gained 3.6% to a six-month high of $3,254 a tonne – more than bearing out optimism among investors who had lifted NZX futures to five-month highs since the last auction.


In fact, the rise in GDT values outpaced the gains of 0.9-1.6% in futures since the eve of the previous auction - headway which had prompted some observers, such as ASB bank, to forecast gains of 1% at Tuesday’s auction.


‘Continues its march higher’

However, the biggest gainer was skim milk powder, which soared by 6.7% to $2,924 per tonne, its highest price at GDT since March 2015.


The performance also narrowed its discount to whole milk powder to $330 per tonne, its lowest since August 2016.


The pick-up in skim milk powder prices comes amid a continued adjustment in values to the European Union’s disposal of its hefty stocks, which had overshadowed the market for years.


EU skim milk powder (SMP) prices as of October 27, the latest data available, stood at E2.350 a tonne, up 37% so far this year, according to the European Commission.


“The European SMP quotation… continues its march higher with nine consecutive weeks of increases climbing to its highest level since August 2015,” said Peter Meehan, senior commodity analyst at INTL FCStone.


‘Strong Chinese demand’

Mr Meehan flagged the “support” to dairy prices from “strong Chinese demand for milk powders… with their September import data showing WMP and SMP well ahead of last year”, with gains of 19% and 30% respectively.


Meanwhile, on the supply side, milk output in the northern hemisphere is heading into its weak, winter period, while expansion in New Zealand production has slowed as its volumes ramp up to seasonal highs, with the pace of growth slipping to 0.7% in September from 2.2% in August.


ASB - talking of “variable” spring weather in New Zealand, with “unseasonably low temperatures in some parts of the country and very wet conditions in others” – has forecast no growth in milk output at all over 2019-20 as a whole.


“Production last [southern hemisphere] spring was very strong, with October setting a record high,” the bank said.


“As such, it will be very difficult for milk production to match this level, particularly if the mixed weather continues.”

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