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Dairy values 'heading for 8th successive gain' at GlobalDairyTrade

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Dairy prices look like they are heading for an eighth successive gain at GlobalDairyTrade auction this week, led by whole milk powder, amid ideas of resilient demand from China, and a New Zealand output slowdown.

 

NZX dairy futures have risen since the last GlobalDairyTrade (GDT) auction, two weeks ago, sufficient to suggest a gain of 2.5% at the next event, on Tuesday, according to StoneX calculations.

 

An increase of that level would take the GDT index to 1,199, a level not seen since April 2014.

 

The gain looks like being led by anhydrous milk fat and, in particular, whole milk powder, which accounts for most of the volumes traded at the auction, and have opened up premiums of more than 3.0% over GDT values for near-term delivery, although with weaker gaps in later contracts.

 

While whole milk powder future have retreated from early-week highs, they “remain at substantial premiums to GDT auction prices even so”, said Tobin Gorey at Commonwealth Bank of Australia.

 

“For now, the set up for the next GDT auction is positive.”

 

‘Record-high temperatures’

Market support has come in part from a series of lower-than-expected milk output reports, including in New Zealand, which provides the bulk of the product sold at GDT, and where volumes grew by 0.4% year on year in January, slowing the pace of growth for 2020-21 as a whole to 0.6%.

 

“Mild conditions across the country with varied rainfall resulted in lower-than-average soil moisture levels for most of the North Island,” according to a briefing on Friday from Fonterra, which processes the vast majority of New Zealand’s milk, and owns GlobalDairyTrade.

 

“Record-high temperatures were observed in eastern areas, particularly in the South Island which constrained milk collection.”

 

‘Some milk was dumped’

By contrast, low temperatures have been seen as prompting a downturn in milk output in Europe, where UK deliveries this month have fallen marginally below year-ago levels, while weekly data from the likes of France and Germany have seen drops of 2-5%.

 

The US Department of Agriculture, in a briefing on western European dairy, flagged “reports of less milk from cows that were struggling with the extreme cold”, and trucking disruptions caused snow and ice which meant that “some milk was dumped.

 

“This will be reflected in a dip in milk production, slowing the seasonal trend upward.”

 

‘It was all bullish’

Meanwhile, January data for the US, while showing output growth of 1.6%, fell below market expectations, spurring recovery in Chicago dairy futures.

 

“We had very little chance of finding a home for 3% more milk, but if we’re lucky on the commercial side and government purchases continue, we can probably clear 1.6% more milk without too much stress,” said Nate Donnay, director of dairy market insight at StoneX.

 

With soft European and New Zealand milk output data too, “it was all bullish this week” for markets.

 

‘Still seem to be bullish’

However, Mr Donnay noted too as supportive for GDT prospects continued talk of strong Chinese demand, which he termed “the main driver”.

 

“Anecdotally, the Chinese traders still seem to be bullish arguing that strong demand for other products is limiting the production of WMP [whole milk powder] inside of China,” for where there Agrimoney has noted market talk of disappointing domestic milk production and rising prices.

 

However, Mr Donnay added that “they don’t seem to be as bullish on SMP [skim milk powder] inside, citing the coming spring flush in the US and European Union”, both big producers of the powder, with April typically bringing the seasonal peak in output in northern hemisphere output.

 

‘Strong interest’

The USDA, meanwhile, noted that Chinese demand for fluid milk has expanded, despite “efforts to increase dairy production internally”.

 

China is showing “strong interest” too in whey, which is used in piglet rations, and so in particular demand as the country rebuilds its hog herd from African swine fever losses.

 

Indeed, Fonterra noted that Chinese whey imports in December rose by 14,726 tonnes, “primarily from the US as China is rebuilding its hog herd and using whey as feed”.

 

“Volumes of fluid milk products from Germany, New Zealand and Poland increased 42,031 tonnes, as strong consumption persisted.”

 

China’s overall imports in December rose by 18.6%, or 51,204m tonnes, to some 325,000 tonnes.

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