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Milk powder futures extend decline, hitting seven-month low


Whole milk powder futures remained under pressure on the NZX exchange, hitting a seven-month low, taking declines at one point nearly to 8% in six sessions.


NZX whole milk powder (WMP) futures for July, the best-traded contract, fell at one point on Thursday to $2,830 a tonne, the lot’s lowest since November, before recovering some ground to close at $2,850 a tonne, down 0.2% on the day.


The decline means that futures – whose decline in the run-up to Tuesday’s GlobalDairyTrade auction provided a good insight, deemed “unusually” accurate by one pundit, of price falls at the event – have now fallen a further 2.7% since, potentially hinting a further GDT deterioration to come.


“The futures are now well below the levels struck” at Tuesday’s auction, said Tobin Gorey at Commonwealth Bank of Australia.


‘Large falls’

Mr Gorey added that “the falls are likely partly a response to the large falls recorded at the GDT auction on Tuesday night”.


One European trader told Agrimoney that the market was still likely feeling some effect from Fonterra’s surprise announcement last week of raised volumes of whole milk powder, skim milk powder and anhydrous milk fat, totalling 4,250 tonnes, for sales at Tuesday’s GDT.


New Zealand-based Fonterra, which owns GDT, sells the majority of product sold through the platform.


Fonterra said that the volume increase reflected “favourable autumn dairying conditions”, which contrasts with a weak end to 2018-19 for New Zealand milk production.


Europe factor?

However, other factors cited by analysts include weakened world economic growth prospects, as evident in the more dovish stance taken this week by the European Central Bank and US Federal Reserve.


Westpac said after the latest GDT that “slowing economic conditions in some of our key trading partner economies, including China and some European countries, signal headwinds for prices”.


Meanwhile, Mr Gorey on Thursday noted too that the weakness in NZX values appeared to be tailing a pullback in EU values, saying that the “extra decline” in whole milk powder futures on the exchange “might partly be because WMP prices in Europe have also declined”.


Nonetheless, the decline in EU values, reported by the European Commission at E2,930 a tonne, is relatively modest, at 1.6% week on week, and at 1.3% so far this month.


‘Notable production increases’

In fact, data this week, for April, showed that soft values appeared to be having an impact on EU whole milk powder production, shown down 7.9% year on year at 55,300 tonnes.


By contrast, the commission flagged “notable production increases” for skim milk powder, up 9.6% year on year, and butter, up 5.1%.


Dairy Australia this week flagged expectations that in the EU “whole milk powder is likely to continue its slide from favour in 2019, due to better returns from other products, and a slowdown in key [import] markets such as Algeria”.


EU milk production revival

The commission also reported EU milk production for April up 1.2% year on year, taking the bloc back into positive growth for 2019, of 0.3% for the first four months combined.


Growth in Irish output soared 15.0%, with the UK, at 4.4%, and Poland, at 2.8%, other major producers also reporting expansion.


By contrast, volumes shrank modestly in France, Germany and the Netherlands.


Rabobank this week forecast EU milk output growth of 0.6% for the full 2019, with that in 2020 pegged at 0.5-1%.


The commission itself has forecast growth of 0.7%, like Rabobank seeing that focused towards the second half of 2019.

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