Sentiment in global dairy markets is pessimistic at present. At last week’s auction in New Zealand, the GDT hit its lowest point since September 2015 when the market was practically on the floor.

The supply and demand balance in the market looks as far away as ever with European and US production powering ahead, while indications from New Zealand suggest that milk production has not dropped as much as hoped. Some market commentators are predicting just a 3% decline in New Zealand supply for this year, which is not the 6% drop in production hoped for at the beginning of the season.

As such, it is no surprise to see futures prices for whole milk powder (WMP), a proxy for the performance of the biweekly GDT, extending losses this week and painting a bleak short-term outlook for dairy markets.

March, April and May contracts for WMP offered by the NZX derivatives market, the New Zealand-based exchange where dairy futures contracts are traded, were all in retreat with prices falling by as much as 13% over the course of last week’s trade. This points to another potential drop in the GDT index at next week’s auction.

WMP futures tend to be a decent gauge for the performance of upcoming GDT auctions as WMP is the key commodity traded at the auction format accounting for more than half of the product sold.

Should next week’s GDT auction record a decline, it will be the fourth consecutive drop in the benchmark index since the beginning of 2016.

The global markets have been extremely volatile since the beginning of the new year. As the largest importer of dairy commodities, concerns around the economic health of China are undoubtedly weighing on dairy markets. At the same time, the collapse in the oil price is also hampering the purchasing power of countries with large oil exports.

Added to this, reduced demand has left large stocks of dairy products still washing around in the marketplace. Before any improvement in the market outlook can take place, these excess stocks at least will need to be cleared.

Read more

GDT plunges by more than 7% after latest auction

Spot milk prices lift but overall sentiment remains poor