The price of whole milk powder, New Zealand's key commodity export, is likely to be little changed on the GlobalDairyTrade platform next week as more product is offered at auction.
Whole milk powder futures for December last traded at US$3,580 a tonne on the NZX, implying prices will edge up 0.3 per cent at Tuesday night's auction, according to AgriHQ senior dairy analyst Susan Kilsby.
Prices for whole milk powder on GDT have increased 74 per cent since early July amid declining milk production and increased demand. Fonterra Cooperative Group, the world's largest dairy exporter, said yesterday it would increase the volume of whole milk powder offered at next week's auction as it looks to generate higher returns in response to strong demand. It will offer 12,120 tonnes of whole milk powder, 550 tonnes more than it had previously forecast with an extra 300 tonnes added to Contract 2, which the futures contract settles against.
"Fonterra is moving product into whole milk powder and away from the other products as whole milk powder is delivering greater returns at the moment than the other products," said AgriHQ's Kilsby. "Having extra volume in there may take a little bit of the heat out of that product so we are expecting a pretty similar result to last auction at this point for whole milk powder."
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By contrast, the amount of skim milk powder on offer at the next auction has been reduced, reflecting the price differential between the two products.
"There is a lot of skim milk powder sitting around the world, particularly in Europe and also in the US, but in terms of whole milk powder, there's just not a lot of product around and so it makes sense for Fonterra to try and direct a bit more milk into whole milk powder at the moment," Kilsby said.
A decline in New Zealand's milk production this season gave Fonterra more options for production at its factories, giving it more flexibility to than usual at this time of year, she said.
While whole milk powder futures contracts from January through April are currently trading at a discount to their previous GDT prices, Kilsby said there was generally less volume traded through those contracts, meaning they were considered less of a market indicator for future prices.