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Dairy groups sidestep shockwaves from GDT price slump

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Some reactions to the tumble in GlobalDairyTrade dairy prices to eight-month lows are proving more predictable than others.


It is not so surprising that values of dairy commodity futures have traded lower, with whole milk powder as listed on New Zealand’s NZX exchange, for instance, closing down 2.5% overnight at $2,750 a tonne.


That was also an eight-month low, on a spot contract basis.


In Europe, butter futures for January dropped 1.6% to E4,500 per tonne.


Shares soar


But perhaps less predictable was the reaction of shares in Oceania dairy companies to the weakened prospects for dairy commodity values.


Shares in the likes of Australia’s Bega Cheese and New Zealand’s Fonterra made modest gains.


Those in Sydney-listed Beston Global Food Company jumped 5.9%, while those in Auckland-traded A2 soared 5.2%, with stock in Synlait Food ending higher too.


Beston ambitions


For Beston, the gains could be attributed to upbeat comments made overnight to the group’s shareholders’ meeting, which heard, for instance, of a target to milk collections to at least 130m litres on an annualised basis by June next year.


This after seeing volumes soar from 20m litres to 70m litres in the latest year.


However, there looks more triggering the sector-wide gains than that – such as the prospect of weaker milk prices too, a plus for processors’ margins.


‘Better production outlook’


One of the key causes of the slump in GDT prices on Tuesday, better-than-expected milk production data in New Zealand, the top exporter, spurred ideas of processors being able to get away with paying less for their white gold.


ASB, for instance, cut its farmgate milk price forecast to NZ$6.50 per kilogramme of milk solids, from a previous estimate of NZ$6.75 per kilogramme of milk solids (which also what New Zealand giant Fonterra currently forecasts paying producers).


“With New Zealand production much-improved, and European Union production already firm, we factor in this better global production outlook into our milk price forecast,” ASB said.


‘Market is nervous’


Australia & New Zealand Bank forecast Fonterra cutting its milk price forecast potentially as low as NZ$6.25 per kilogramme of milk solids.


"It is clear the market is nervous about rising global supply,” the bank asid.


“European supply is increasing on the back of higher farmgate prices and favourable seasonal conditions, and [Oceania] supply is improving too.”


So it is producers who actually look like taking the hit from dairy price weakness.


On the scale of surprise outcomes, that must be deemed as being on the predictable end.

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