Since the beginning of August, the futures market for whole milk powders (WMP) operated in New Zealand has surged more than 26% as dairy market sentiment improved. Milk production in New Zealand is forecast to decline 3% this coming milking season, meaning global stocks of WMP are set to tighten.

Added to this, the world’s largest exporter of WMP, Fonterra, has been shifting its product mix in the last year, with more milk given over to higher value-add products and less to milk powders.

All of this combined has resulted in the surge in the milk powder futures market, which in turn fed into the recent surge in the GDT at the last two auctions.

However, after a month of surging prices, the futures market for WMP has tapered off this week, with prices levelling out. Since last week, the futures market has declined slightly, with October, November and December contracts for WMP falling a marginal 1%.

While this marginal decline in the WMP futures market is relatively insignificant, it may suggest that the recent growth in WMP prices at the GDT has plateaued and found a new level. At the last two GDT auctions, the majority of buying (over 90%) came from Chinese and southeast Asian buyers.

Worryingly, there was little or no buying from Europe, the Middle East or North Africa. It is likely that Chinese buyers will be very active for the next few GDT auctions as they time their buying with the start of the New Zealand milking season.

However, once that buying drops off, there is a real concern over how sustainable the recent GDT rally can be if it is not supported with buying from the Middle East and North Africa.

Read more

Dairy trends: GDT needs more buyers than China for rally to continue

The five reasons why milk prices are improving