Dairy product prices firmer but smaller than anticipated

milkDairy product prices increased in the latest GlobalDairyTrade auction, moving higher for a second straight auction, though the gains were less than expected amid concern about worldwide excess supply.

The GDT average winning prices added 1.9 per cent to US$2,458, up from US$2,419 at the previous auction two weeks ago. Some 24,888 tonnes of product was sold, down from 28,158 tonnes two weeks ago.

“It was disappointing that the GDT prices didn’t move up by as much as the market anticipated,” AgriHQ dairy analyst, Susan Kilsby, said in a note. “However, the results are not surprising given that demand for dairy commodities is still weak relative to global milk supply.”

The AgriHQ 2015-16 farmgate milk price climbed 19 cents to $4.67 per kilogram milk solids. This is comparable with Fonterra’s current 2015-16 milk price forecast of $4.60/kgMS.

“The lift in the AgriHQ 2015-16 farmgate milk price was primarily driven up by the strength of the NZX Dairy Futures market in the run up to GDT,” Kilsby noted. “The lift in the GDT prices also provided some support but these gains were smaller than expected.”

Butter rose nine per cent to US$3,136 a tonne, while lactose increased 6.8 per cent to US$542 a tonne, and anhydrous milk fat advanced 6.1 per cent to US$3,721 a tonne.

Whole milk powder added 1.8 per cent to US$2,304 a tonne.

The later-dated whole milk powder contracts traded “at a small premium” over the nearby contracts at the auction, Kilsby said.

“The premium was less than it was at the previous auction indicating buyers are less concerned about securing supply for later in the season than they previously were,” according to Kilsby.

Cheddar gained 1.1 per cent to US$2,856 a tonne, while skim milk powder eked out a 0.2 per cent increase to US$1,891 a tonne.

However, rennet casein dropped 9.5 per cent to US$4,541 a tonne, and butter milk powder slid 6.1 per cent to US$1,564 a tonne.

According to Anne Boniface, a senior economist at Westpac, although firmer, the increase in prices was smaller than had been signalled by the NZX futures market.

“It was also a fairly soft outturn given Fonterra had announced a reduction in the volumes offered on the GlobalDairyTrade platform this week, including a two per cent cut in the forecast supply over the next 12 months. More broadly, Fonterra now expects its milk collections to be down six per cent over the 2015/16 season. They had previously been expecting a five per cent decline,” she said.

“Nevertheless, firmer prices in last  night’s auction are broadly consistent with our forecast of a $4.50 farm gate milk price this season. However, this forecast relies on further improvement in prices in the new year as dry weather takes a bite out of NZ milk production.”

There were 112 winning bidders out of 161 participating bidders at the 10-round auction. The number of qualified bidders was 613, the same as at the last auction.

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