Whole milk powder prices are projected to tumble overnight on the Global Dairy Trade auction.
The futures market expects the main whole milk powder price to decline at Tuesday’s Global Dairy Trade auction.
The average price for whole milk powder, which has the largest influence on farmer pay, declined 3% at the previous auction a fortnight ago, and the SGX-NZX Dairy Derivatives market was forecasting another 3% reduction at the auction overnight this week.
According to Stuart Davison, global dairy consultant at HighGround Dairy, the market was anticipating another drop in whole milk powder on the GDT after Fonterra changed their offer quantities.
Fonterra has limited the quantity offered at this auction due to “tight seasonal inventory positions.” However, it also moved up the volume for the July and August auctions, claiming that the adjustment will better link GDT offer volumes with milk supply and collection patterns throughout the year.
Davison believes that the lesser volume at the forthcoming auction will not boost pricing.
“Buyers are well aware that there will be greater volumes on offer in less than two months on the GDT platform,” he added.
He predicted that the additional volume would have a negative impact on demand.
Fonterra cut the quantity of whole milk powder offered at auction by 8.4% overnight, to 10,870 metric tonnes. It boosted the quantities of the two July auctions by 4.2% to 12,510 MT each, and the August 1 sale by 24.4% to 17,830 MT, matching the amount offered in the August 15 auction.
STUFF
When purchasing milk from farmers, Fonterra considers the fat and protein levels.
Davison predicted that the entire GDT index would decrease overnight at the auction as prices for other important items remained constant or dropped.
Over the last year, the GDT index has fallen by 25%, while the average price of whole milk powder has fallen by 23%.
Demand for dairy products has slowed as China’s economy has not recovered as quickly as predicted after its exit from tight zero-Covid shutdown regulations.
According to Fonterra CEO Miles Hurrell, he expects Chinese demand to recover to normal by the end of this calendar year.
Hurrell said that Fonterra is “very positive” about the Chinese market in the medium to long term due to favourable demographics, a growing middle class, and higher dairy product consumption.
Davison said buyers were cautious, and demand from China remained “bearish” despite a rise in domestic milk output.
Summer heat waves in China may enhance demand for liquid milk and ice cream in the immediate term, while reduced interest rates and other government stimulus measures may boost consumption over the next six months, he added.
Nonetheless, he stated that this may not result in increased GDT pricing.
“There’s so much milk in China that they have no reason to come to GDT for anything other than necessities,” he remarked.
On Tuesday, China’s central bank slashed interest rates in an effort to help the country’s economy after its exit from tight zero-Covid lockdown policies.
According to Reuters, the one-year loan prime rate was reduced by 10 basis points to 3.55%, while the five-year rate was reduced by the same amount to 4.20%. The decision follows the central bank’s reduction of short- and medium-term interest rates last week.
There is also speculation that the Chinese government may present a stimulus plan, including assistance for the suffering real estate industry and incentives for people to spend.
China is New Zealand’s biggest primary industry export market, accounting for around one-third of total primary industry export value in the year to the end of March.
Weaker commodity prices aren’t helping the currency, with Kiwibank forecasting a drop from US62 cents to US55 cents by the end of the year.
Kiwibank attributed the drop to lower commodity prices, interest rate differentials, and poor economic indicators.
While the Reserve Bank of New Zealand has finished raising interest rates, the Federal Reserve had further rises planned, according to Kiwibank.
Nonetheless, Kiwibank warned that the currency’s drop would be “a bumpy ride lower” and that it might be “a bumpy ride lower.”
Kiwibank advised importers to keep a look out for any upward movements, especially any short-term transactions up towards the US63c level.
On Tuesday, the benchmark S&P/NZX 50 Index rose 0.3%, or 38.625 points, to 11,789.37. With $130 million shares traded, 68 stocks climbed and 52 sank on the wider market.
