Tuesday, 08 December 2015 10:56

‘Opportunistic buyers’ know prices won’t last

Written by  Pam Tipa
Buyers are taking advantage of low whole milk powder prices. Buyers are taking advantage of low whole milk powder prices.

Opportunistic buyers taking advantage of low prices were probably behind last week's 3.6% overall rise in the GlobalDairyTrade (GDT), says Rabobank research analyst Emma Higgins.

"It's likely this upturn in pricing is driven by opportunistic buyers who are aware that dairy product supplies at these low prices are unlikely to be as abundant moving into 2016," she told Dairy News.

She is cautiously optimist regarding last week's GDT result.

"The re-balancing of supply and demand fundamentals is a work-in-progress," she says.

"Critical to this progress is the European milk supply, which continues to pump additional milk into the export market. More positive, however, is the slowdown in US milk production growth, which will help to ease the current over-supply situation.

"New Zealand will also contribute to this supply contraction. Current production volumes for NZ are back 3% for the season to October 2015, compared to last season. Rabobank still expects a drop in NZ milk supply of around 7-10% by the end of the 2015-16 season.

"On the demand side, there is significant product in global inventory pipelines to work through yet, which may take some time.

"We expect to see stronger upward momentum in the second quarter of 2016 as the supply and demand dynamics improve."

Federated Farmers dairy chairman Andrew Hoggard says it was a little rise but a positive sign. Forward contracts for WMP rose 5% rise. But with US$3000/t for WMP still the "magic number", there is still a way to go, he says.

"For farmers it holds off the risk of the milk price being dropped but it is still no guarantee. It will still need some consistent rises to guarantee the current milk price and hopefully add a bit to it."

NZ's milk production is tipped by several companies to be 5-10% down. Everyone is saying it is going to be down, he says.

But from what he hears, the EU and the US still aren't getting the signals significantly. "Or if they are getting them they are thinking they will go and protest and that will fix it," he surmises.

Or they haven't drawn the correct conclusion that if people aren't willing to pay more for milk you don't produce more of it.

"In Europe the world price eventually flows through to them but it is often quite late in the piece. In America they struggle to see the proper world price.

The US has strong domestic markets but they are exporting a lot, he says. "Every time they increase production it generally ends up in export markets."

Everyone is talking about a pick-up in mid-late 2016, he says.

ASB rural economist Nathan Penny says they are sticking with the milk price forecast of $4.60kg/MS. The latest lift at GDT was in line with expectations.

He says dairy prices will move higher over 2016 but at this junction dairy markets and buyers are not in a particular hurry.

However the NZ production shortfall will bite. A market assumption that other producers like the EU will pick up NZ's slack is misplaced. Lost NZ exports are too big to cover, he says.

More like this

China keeps dairy prices high

Whole milk powder (WMP) prices are now sitting above pre-Covid-19 levels and New Zealand farmers can thank a resurging Chinese economy for that.

Holy cow!

Last week's whopping rise in dairy prices is encouraging, but it’s too early to pop the champagne, say analysts.

Featured

Water reforms come at a cost

The government’s new freshwater laws, signed off this week, have the potential to create significant unnecessary costs for ratepayers, farmers and entire communities, Federated Farmers says.

2020 harvest yields up

Final harvest data for wheat, barley and oats (milling/malting and feed) in 2020 show yields were up 17% overall across the six crops.

 

Difficult but the right call

DairyNZ chief executive Dr Tim Mackle says the joint decision three years ago to eradicate Mycoplamsa bovis was a difficult call.

Milking cluster milks runner-up award

DeLaval has come away with the runner up prize in this year’s Fieldays Online innovation competition with a new milking cluster that eliminates the need for conventional liner changes.

Glow worms to cows

Thomas Lundman's work focus has gone from tracking tiny critters in pitch black caves to looking after considerably larger animals in paddocks near Whakatane.

» Latest Print Issues Online

Milking It

A ticking timebomb?

There could be another dairy health scare brewing in China and this one starts in our backyard.

Please explain

Does anyone in the Government understand the essential role St John Ambulance has in our society?

» Connect with Dairy News

» eNewsletter

Subscribe to our weekly newsletter