Healthy margins despite slight dip in prices

Markets are likely to remain balanced over the coming months.

Rabobank expects NZ milk supply to return to growth in the new 2017-18 season, also supported by more helpful seasonal conditions than prevailed in spring 2016.

Higgins says there were some weaknesses in last week’s GDT Event, with the index moving marginally lower to an average price now of US$3434/tonne.  

Fat continued setting record prices. AMF lifted 4.4% to US$6885/t – a GDT average price record – while butter gained by 2.9%, with the average price reaching US$5768/t (again another GDT record).

“Lower milk production from Europe across the peak of the season, and less fat stocks, coupled with continued strong demand for milk fats from developed markets, are underpinning these outstanding prices,” Higgins says.

“On the flipside, cheese prices lost some ground, dropping 3.8% to an average price of US$4121/t.  Europe has been gearing up cheese production as they work through the spring flush.”  

WMP price dropped a modest 3.3% to US$3022/t.

There is less fresh product available as we move into our seasonal hiatus here in NZ over the next couple months, says Higgins.

“However, we still expect to see increased buying by the Chinese as we move further into the second half of the year.”  

SMP moved up a fraction (1.4%) to US$2218/t.

“No SMP has been entered into European intervention stores for the third week in a row, providing price support for fresh SMP product.”

ASB rural economist Nathan Penny also noted milk fats continued their record run.  At the last auction butter set a record high. 

“Overnight, the auction went one better, with both butter and anhydrous milk fat (AMF) setting fresh record highs.  In fact, butter prices have more than doubled in the space of just a year,” he says.

“All up, the global dairy market outlook remains firm. Moreover, with supply and demand in balance, we expect prices to fluctuate around current levels over coming months. While global dairy markets can change rapidly, for now, a period of relative calm lies ahead.”

In its monthly update, Rabobank says supply remains constrained across the export horizon, helping to support prices.

“However milk supply from export regions will be moving back into a modest growth phase over the coming months – led by the EU and NZ.

“The opening forecasts for NZ milk processors have been announced. With the majority of milk processors opening forecasts lying in a relatively narrow range of $6.25/kgMS - $6.65/kgMS, the 2027-18 season is already off to a more confident start than the prior season.”

NZ milk production for the 2016-17 season is likely to close just 1% lower than last season’s production volume (although the final tallies are yet to be counted), Rabobank says.

Total milk collection for 2016-17 will likely end up around 21.3m tonnes of milk.

The bank expects the anticipated spread between proteins and fats to continue across much of 2017.

“Global milk supply taps are starting to drip again and the resulting exportable surplus will increase across 2017 and moving into 2018. The additional supply will be met by steady, if modest, global demand growth across this period.”