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Home / Business

Milk futures dip ahead of auction

BusinessDesk
7 Oct, 2016 08:51 PM2 mins to read

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The latest pullback in GDT whole milk powder prices is likely driven by seasonal demand, analysts say. Photo / File

The latest pullback in GDT whole milk powder prices is likely driven by seasonal demand, analysts say. Photo / File

New Zealand milk price futures have fallen below Fonterra Cooperative Group's current farmgate payout forecast as traders doubt a sharp gain in prices can be sustained.

The NZX milk futures contract for the 2016/17 season hit a record $5.65 per kilogram of milk solids following four consecutive gains in whole milk powder prices on the GlobalDairyTrade auction platform, which pushed up the average price by 36 per cent to US$2793 a tonne on September 6.

However, a 4.1 per cent decline in whole milk powder at the two GDT auctions since then has weighed on milk futures, which recently traded at $5.15/kgMS, below Fonterra's current expectation for its farmgate milk price for the season of $5.25/kgMS, which it hiked from $4.75/kgMS on September. 21.

"The GDT is a more current way to gauge where the payout might be going as Fonterra is only updating its payout relatively infrequently so on the back of a weaker GDT the milk price future is going to move a lot quicker than Fonterra might update their estimates," said OMF commodities dealer Karl Arns. The milk futures show traders "expect a revision down" to Fonterra's payout, he said.

The latest pullback in GDT whole milk powder prices following a sharp rally mirrors last year's trend, which analysts say is likely driven by seasonal demand as traders secure product to take advantage of a lower tariff rate under New Zealand's free-trade agreement with China at the start of each calendar year. Still, declining production is expected to underpin future prices.

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Arns said: "Given that, we are relatively positive. The market did shoot up extremely quickly and that can often be unhelpful and unsustainable, so we would probably view what's happening here as more of a consolidation rather than an imminent correction and a massive fall coming."

The next GDT auction is scheduled for October 18.

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