GlobalDairyTrade auction prices may be flat, OMF says

The price for New Zealand's key dairy product, whole milk powder, may be relatively flat at tonight's GlobalDairyTrade auction, according to traders who track the NZX futures market.

The July whole milk powder contract was the sole contract to trade yesterday, closing unchanged on 50 lots at US$2,280, according to OMF's New Zealand dairy futures report today. Futures contracts from May through September last traded slightly ahead of their GlobalDairyTrade equivalents, "predicting a slight rise for WMP though it's a marginal call and could be flat", OMF said. Skim milk powder futures contracts suggested a gain of about 5 percent and the overall GDT would likely be flat, the brokerage said.

"Premiums in whole milk futures versus GDT are quite small, better for skim milk and overall it's been pretty quiet and a bit mixed in the market so it's been quite hard to predict over the last few GDTs based on where the futures are but that's how it looks at the moment, so we think a rise for skim, flat for whole milk and probably flat overall for the index," said Nigel Brunel, financial markets director at OMF in Auckland.

Over the last three months, the futures have traded in a tight range with lower volumes as intervention in the European market sets a floor and cap on prices, resulting in less volatility, he said.

The European Commission announced in March that it would extend the volume of skim milk powder and butter able to go into its intervention programme ahead of the region's peak production period in spring. Fonterra Cooperative Group noted in an update this week that European Union milk production was ahead of last year, although New Zealand production declined in response to lower prices.

New Zealand is at a seasonal low point for milk production, which will start to pick up around July or August ahead of a seasonal peak around October or November, Brunel said.

New Zealand accounts for only 3 percent of the world's dairy production, but 30 percent of the global milk trade due to the country's small domestic market.

(BusinessDesk)