When will global milk production hit a tipping point?
With global milk prices falling, the question is when will key exporting countries reach a tipping point where production starts to dip.
Last week's Global Dairy Trade (GDT) auction saw prices slip, however Middle Eastern demand for milk fats increased.
Whole milk powder prices dipped 2.1% to US$4,084/tonne. Skim milk powder price was down 1.3%. But butter prices continue to climb, rising 1.45% to US $7,890/tonne.
According to NZX market analyst Lewis Hoggard, the demand outlook seemed to be weakening over the past few weeks as buyers wait for new season product.
However, he believes there was a degree of stockpiling pressure due to elevated geopolitical risk in the Middle East which helped ease the fall in commodity prices.
"Due to another flare up in tensions in the Middle East, we had a keen eye on what their buying behaviour would be at this GDT.
"Similar to early last year at the start of the Israel-Hamas war, Middle Eastern demand for milk fats increased which put upward pressure on NZ prices. Thirty-two% of butter at this auction was sold to the Middle East, a stark contrast from the previous auction where they bought no butter."
The Middle East was also the second largest purchaser of AMF at this event and bought a whopping 47% of the cheddar on offer, which helped bid the price of cheddar up 5.1%, just shy of the US$5,000/t mark.
Hoggard notes that NZ product outperformed the futures market expectations prior to last week's auction, especially for butter which saw yet another increase in price.
"Coming into the event there was plenty of downward pressure on milk powders, especially at GDT Pulse, and the futures market had seen some selling pressure down the curve.
"We also noted that the premium for NZ SMP over EU has fallen below $100/t, as EU prices have rallied in recent weeks against falling NZ SMP prices."
