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Will the surge in GlobalDairyTrade dairy prices stick?

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What was behind was the surge in GlobalDairyTrade dairy prices at Tuesday’s auction? And will the gains stick?

 

NZX whole milk powder futures for August gained 3.0% overnight to $3,075 a tonne, a five-month high for a nearest-but-one contract, which allow a bit of catch-up with the August GDT lot – but not that much.

 

The futures lot still closed at a hefty 12.3% discount (with lesser gaps for follow-on contracts).

 

Does this indicate that markets believe GDT gains were overcooked? Leading commentators give their views below.

 

 

Chris Tennent-Brown, ASB

Fonterra announced an appropriately wide 2020-21 opening milk price forecast range of NZ$5.40-$6.90 per kilogramme of milk solids back in May.

 

We have been forecasting $6.50 per kilogramme, and at one stage were concerned about downside risks.

 

Recent price movements and today’s outsized gains flip the risks around. The price gains, if sustained, will boost the milk price for the 2020-21 season.

 

Our 2020-21 forecast is under review and will be updated after the next event in a fortnight. We’ll be looking for how much of the latest lift is sustained.

 

 

Tobin Gorey, Commonwealth Bank of Australia

NZX futures prices had been signalling a hefty rise in auction prices. But the futures pre auction premiums of 5 6% obviously well understated the actual gains.

 

The higher prices will certainly help bolster milk prices near term.

 

More importantly though, does this foreshadow more gains? For near term prices, maybe.

 

We suspect this is another example of supply chains building buffers at each step to manage the supply and delivery risks raised by our pandemic context.

 

That extra demand though is fleeting because the buffers only need to be so big. And there is another element of our current context that likely helps near term prices.

 

 

Tom Phelan, Irish Farmers Association

The whopping 8.3% increase in today’s GDT auction result is the clearest indicator yet than markets are recovering as global markets reopen and food services demand recovers post lockdown.

 

This should give co-ops confidence to increase June milk prices.

 

After several weeks of steady European spot and average market price increases for the main commodities, I believe this is the most decisive indicator yet to show that confidence and demand are returning to dairy markets

 

 

 

Amy Castleton, NZX dairy analyst

There has been good demand for WMP recently, and there is still limited availability from New Zealand at this time of year with our season yet to get into full swing.

 

It’s likely that buyers have been trying to get in while prices are relatively low, and while product is available, with milk production for the season ahead uncertain.

 

 

Nathan Penny, Westpac

Effectively, the price lift overnight wipes out the Covid-related price falls from January through May.

 

But some of this lift is likely to prove temporary.

 

The oversized WMP lift suggests this is a New Zealand phenomenon as New Zealand dominates global WMP exports. This makes sense as the auction falls within New Zealand winter and the amount offered at this auction was relatively low (as it normally is).

 

Accordingly, as auction volumes increase into spring we expect WMP prices to give back some of these gains. We can see from the overnight result that prices were higher for the shorter dated contracts than for the later dated ones.

 

In other words, buyers are unwilling to pay the same price for later-dated contracts knowing that larger quantities of product will be on offer at upcoming auctions.

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