Milk powder prices may drop 7% at next week's GDT auction

The price of milk powder, New Zealand's key commodity export, is expected to fall on the GlobalDairyTrade platform next week after improved weather conditions prompted Fonterra Cooperative Group to increase the amount of product it's offering.

Whole milk powder futures for March last traded at $US2980 a tonne on the NZX, 5.7% below the equivalent price at the last GDT, while skim milk powder futures fell 12% to $US2290 a tonne. That implies milk powder prices will fall about 7% at Tuesday night's auction, said AgriHQ senior dairy analyst Susan Kilsby.

Fonterra, the world's largest dairy exporter, said yesterday it would lift the volume of whole milk powder and skim milk powder offered in coming auctions on the GDT platform by about 25,000 tonnes as more favourable weather meant it collected more milk than expected from its farmer suppliers. The dairy giant lifted the volume of skim milk powder for next week's auction by 49% for product that ships in May and June, and increased the volume of whole milk powder by 6.1% for product shipped from April through June.

"Fonterra yesterday said it would put out more product than the market was expecting," Ms Kilsby said. "That reflects that this season's milk production is now expected to be more than what was previously accounted for."

Kilsby said AgriHQ's pasture growth index showed conditions in dairy regions have been substantially better than last year and also better than the long-run average for this time of the year.

She noted that strong global demand for milk fat products such as butter and AMF meant Fonterra was likely to sell those products to customers outside of the GDT, whereas weaker demand for skim milk powder meant it would be sold on the auction platform.

Fonterra last week kept its forecast farmgate payout to its farmer suppliers at $6 a kilogram of milk solids for this season, citing the rebalancing of demand and supply which led to a slump in dairy prices last year and said it expects those prices to either stay stable or gradually increase.

Traders have pulled back their expectations for next season, with milk price futures on the NZX recently falling 10c to $6/kgMS.

"The futures market is indicating there is no increase in milk price next year relative to where Fonterra's current forecast is for this year," Ms Kilsby said.

(BusinessDesk)