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Global dairy prices likely to continue reclaiming ground in this week's auction, but ANZ economists say a slowdown in milk supply will still be needed

Rural News
Global dairy prices likely to continue reclaiming ground in this week's auction, but ANZ economists say a slowdown in milk supply will still be needed

By David Hargreaves

Dairy prices look set for another substantial rebound at the latest GlobalDairyTrade auction to be held in the early hours of Wednesday morning.

Trading in the NZX's whole milk powder (WMP) futures suggests that the key WMP prices could rise in the region of as much as 20%, taking the average price comfortably back over the US$2000 per metric tonne mark.

This would follow on from a 19.1% rise in WMP prices at the last auction two weeks ago, when dairy prices as a whole lifted by 14.8%.

It should be stressed that futures trading patterns have not always been a reliable guide to what's actually going to occur at the physical auction this year, but the futures prices did fairly accurately point to the bounce in GDT prices two weeks ago.

Another significant rebound in prices this week would be a further relief to farmers who have been told by Fonterra to expect just $3.85 per kilogram of milksolids in the current season, compared with an actual price of $8.40 paid out only a year ago.

But even a 20% or so surge in dairy prices in the latest auction would need putting into perspective.

In February 2014 WMP prices averaged over US5000/MT. As recently as March this year average WMP prices (after falling very sharply at the back end of last year) had risen to above US$3200/MT on expectations of a shortage of supply due to a drought in New Zealand. In the event the effects of the drought here were overcome much more rapidly than expected and milk production was actually up in the past season.

Between March and the beginning of this month there were then 10 consecutive falls in prices at the GDT, with the last two drops particularly severe. In the period from early March to early August the average price for all dairy products at the auctions dropped from US$3374/MT to US1815/MT - a 45.8% slump, while the average WMP price did even worse, plunging from US3241/MT to US$1590MT, a 50.9% drop.

The recovery in the prices at the last auction and the expected further recovery this week come following drastic action from Fonterra to reduce the amount of product, particularly WMP, it makes available through the GDT. Fonterra's managing director global ingredients, Kelvin Wickham says Fonterra is now selling approximately 70% of its total product via channels other than GDT "and as a result we do not expect a material impact on inventories”.

Economists with the country's largest rural lender ANZ say that "market intelligence" suggests WMP prices have scope to move back to US$2100-$2200/MT "fairly quickly".

"But to go beyond this requires a slowdown in milk supply, especially from New Zealand," they say.

"A slowdown here seems inevitable, but it is unlikely to show up in any substance until the second half of the season.

"Putting aside weather events such as El Nino, we expect the decline could be toward 5% due to a reduction in cow numbers and the use of less supplementary feed.

"However, as yet we are not seeing a decline in supply from the US or Europe.

"In fact both regions continue to grow milk supply strongly, despite grumbles from farmers about low farm-gate prices that are not even close to those in New Zealand," the economists say.

They believe that for prices to move back above US$2500/MT, an improvement in the fundamentals – "and not just sentiment and bargain hunting" – will be required.

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10 Comments

Rabo bank says the other day the price will not bounce back until mid-2016.

$2k per tonne for WMP is certainly better than $1.5k per tonne but not gonna change whole scheme of things.

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It would certainly depend on a cessation of US Federal Reserve jawboning rhetoric, calling for higher inflation, thus higher USD currency pair values. The Fed may not be done with attempting to boost US citizen spending power brought about by lower commodity prices, since all else has failed, including QE and ZIRP.

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The dramatic plunge in oil prices might be spooking some investors, but Janet Yellen isn't worried at all.

The Federal Reserve chief believes oil tumbling below $55 a barrel is like a tax cut for American consumers.

"It's good for families, for households. It's putting more money in their pockets," she said.

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Cheaper energy also translates to lower expenses for many U.S. businesses, especially ones in the transportation industry like airlines. Read more

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What a load of nonsense.
Dude, do you even know what you are talking about?

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I guess so - since I irk you so absent a defence of your position.

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from what was put on Friday

AUSTRALIAN dairy farmers are being paid too much for their milk, says the boss of the world's biggest milk exporter, Fonterra................
"We know those export prices so I can calculate based on the mix of exports that [farm-gate] price," Mr Spierings said. "And that is not on the level of $5.60."
But he stopped short of saying what he believed the price should be, saying next week's global dairy trade auction could alter his calculation.

http://www.theland.com.au/news/agriculture/agribusiness/general-news/au…

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and then the reply.

Australia's biggest dairy processor, Murray Goulburn, has warned farmers of possible milk price cuts this season amid a souring environment for global dairy markets. The co-operative's managing director, Gary Helou, reiterated its previous guidance of $6.05 a kilogram milk solids for this season on Monday. But he warned that could slide to $5.60-$5.90 a kilogram if global prices for key dairy commodities did not improve as expected.

Australian Dairy Farmers president Noel Campbell told Fairfax Media last month that most farmers operated on a $5 to $5.50 a kilogram milk price to cover their costs of production.

Read more: http://www.smh.com.au/business/murray-goulburn-says-farmer-payout-affor…
Follow us: @smh on Twitter | sydneymorningherald on Facebook

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So all the conditions which caused the slump remain, enough said really.

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when dairy prices as a whole lifted by 14.8%.

David, can you please get your facts right.

You linked to:
https://www.globaldairytrade.info/en/product-results/

Which shows 'Change in GDT Price Index from previous event'. Note that it refers to an index. That index is made up of WMP, SMP and AMF.

The overall (average) price of dairy products at the last auction rose by 8.8%. I commented on the change at the time.

Go to the following to work it out for yourself:
http://www.globaldairytrade.info/results-json/latest/Trading%20Events%2…

Please do not continue making this fundamental error!

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dead cat bounce?:)

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Or a highly orchestrated dead cat bounce?

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