NZX milk powder futures point to 5th successive decline in looming GDT auction

Tuesday 5th May 2015

New Zealand whole milk powder future contracts weakened this morning as traders pulled back their expectations heading into tonight's GlobalDairyTrade auction, where New Zealand's biggest dairy export product is expected to post its fifth successive price decline.

The current May whole milk powder futures contract last traded at US$2,280 a tonne on the NZX, a discount to the US$2,380/t winning price at the last GDT on April 15, suggesting the price will decline at tonight's auction.

The June WMP futures contract slipped US$30/t to US$2,300/t in morning trading on the NZX, a discount to the US$2,400/t winning price at the last GDT. The July futures fell US$10/t to US$2,420/t, a discount to the US$2,435/t at the last GDT, while the August futures dropped US$15/t to $2,430/t, a discount to the US$2,445/t at the last GDT. The September futures slipped US$20/t to US$2,540/t, and are still priced at premium to the $2,495/t at the last GDT.

Whole milk powder average prices on the GDT platform have fallen by a quarter over the past two months, with the futures market picking further declines ahead. Global demand for dairy products is tepid due to softer demand in China, the world's biggest importer of dairy products, and Russia. Meanwhile, a weaker euro is making production from the region more competitive as low international grain prices stoke production in the northern hemisphere ahead of the start of the New Zealand dairy season.

"Whole milk powder futures went to a premium to the GDT, they have gone back to a discount so the futures curve is picking that GDT will fall this time," said OMF financial markets director Nigel Brunel. "It is still suggesting a bit of weakness."

Skim milk powder futures also fell in morning trading, suggesting a decline in GDT prices tonight.

Exports of milk powder, butter and cheese, New Zealand's largest export commodity group, dropped 13 percent in the year through March to $13.04 billion, according to government figures published last week.

Also last week, Fonterra Cooperative Group, the world's largest dairy exporter, cut its forecast payout to farmers for the current 2014/15 season to $4.50 per kilogram of milksolids from $4.70/kgMS, citing an oversupply in international markets and volatile commodity prices. The Auckland-based cooperative is expected to provide its forecast for the upcoming 2015/16 season following its May 27 board meeting.

The New Zealand milk production season spans June through May with peak production in the spring months covering September through November, with a couple of months' lag for production before the product is sold.

BusinessDesk.co.nz

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