Big moo-ve expected as dairy futures point to another gain at GDT auction

The futures market is pointing to whole milk and skim milk powder prices going higher still at Wednesday’s Global Dairy Trade (GDT) auction.

Pricing over the next month or so – the season’s production peak - is seen as being important as it will be key in determining Fonterra’s final farmgate milk price.

Whole milk prices have been rising sharply since bottoming out at US$2548 a tonne in mid-August.

At the last event on September 20, whole milk powder prices hit US$2799 a tonne, up 4.6 per cent on the previous sale.

Skim milk powder, which, like whole milk powder, plays a big part in forming Fonterra’s farmgate milk price, has also been strong, last trading on GDT at US$2400 a tonne, up 5.4 per cent.

“The futures market is definitely bullish on it,” HighGround Dairy consultant Stu Davison said.

“In whole milk powder and skim milk powder, we are looking at gains of 5.3 and 7.9 per cent respectively, so they are pretty keen on a lift,” he said.

Futures market pricing also suggests milk fat prices will be strong.

However, Davison said it looked like futures market pricing was overcooked.

“The futures market is banking on the milk supply contracting in New Zealand and creating a response from China, and momentum carryover from the last auction.

“I’m not as bullish as the futures market is, but I still expect a flat to slightly negative result, which would still be a positive result considering where the market is.”

He said a flat or slightly softer result would be a positive for Fonterra’s current milk price range, which is $6 - $7.50 per kgMS with a midpoint of $6.75 per kgMS.

The season’s production usually peaks in October.

“There is this mass of volume and it’s fairly well-concentrated, so this period has a fairly large bearing on the milk price,” Davison said.

“A flat result will be a positive for the milk price going forward, and will be a good place for prices to grind a little bit higher.”

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.