Fats flex muscle at GDT auction

The GDT price index rose 1.6%, with whole milk powder (WMP) up 2.4% to US$2924/tonne.

The spread in pricing between fats and proteins is at record levels, Higgins told Dairy News.

Anhydrous milk fat (AMF) lifted 2.5% to US$5936/t -- the highest average price for AMF in GDT history, she says.

“And although butter lost ground by 1.6%, the average price of US$4751/t is still the second-highest average price in the history of butter offerings on GDT.

“Given low SMP pricing dynamics coupled with lower global milk production, low fat stocks are underpinning outstanding fat prices.”

Looking at the powder front, Higgins says the modest WMP price lift was supported by lower auction volumes, with 20% less on offer than in the previous auction.

While SMP moved a fraction lower (-0.8%) to US$1913/t, a sizable 50% increase in SMP offer volumes makes the result overnight seem “very positive indeed”, she says.  

Despite this Rabobank expects to see SMP prices stay about these low levels.  

“Providing a floor for SMP pricing support over the coming weeks and months will be the re-opening of the European intervention scheme. As at end of March 2017, no sales had yet taken place, but watch this space.”

Higgins says they expect to see the divergence of proteins and fat prices to continue for much of 2017.

“Global milk production continues to decline, impacting the volume of milk available for export. We think the exportable surplus will take until second half 2017 to increase and this will help underpin relatively stable prices in this period.”

ASB senior rural economist Nathan Penny says from here they expect prices to largely track sideways, before drifting higher later in 2017.

This result reaffirms ASB’s 2016-17 and 2017-18 milk price forecasts of $6/kgMS and $6.75/kgMS, respectively.

“With the better-than-expected NZ summer and autumn production now largely priced in, we expect WMP prices to tread water about these current levels,” he says. 

“With that in mind, we note that a broad range of buyers (Middle-Eastern, African and European) participated in the auction overnight, whereas in prior auctions they may have been waiting in the wings, anticipating further price falls.

“Heading into next season and as the NZ production filip clears markets, we expect WMP prices to remain well-supported and to drift higher.”

Westpac economist Sarah Drought says following the extremely weak auction in early March (when WMP prices fell 12%), the last two auction results have been encouraging.

“Global dairy prices have been known to over-run fundamentals and we had been concerned about further near-term downside in prices,” she says.

“But dairy markets had more resilience than we gave them credit for, as buyers stepped in to take advantage of lower prices.”

Westpac has upgraded its farmgate milk price forecast for the 2016-17 season by 10c to $6/kgMS, in line with Fonterra’s latest forecast.

“At its half-yearly update Fonterra indicated confidence in its guidance for a 40c dividend, which would take the total cash payment to $6.40/kgMS.”

For the next season a farmgate milk price in the low $6’s is their “base case although uncertainty bands are wide at this stage”.

Rising global supply is expected to cap the upside to dairy prices this year and there is a risk of oversupply if weather conditions allow.

And while global dairy demand has improved over the past year, it is patchy in regions and products.