Whole milk powder likely to be flat at next week's GlobalDairyTrade auction

The price of whole milk powder, New Zealand's key commodity export, is likely to be little changed on the GlobalDairyTrade platform next week as more product is offered at auction.

Whole milk powder futures for December last traded at $US3580 a tonne on the NZX, implying prices will edge up 0.3% at Tuesday night's auction, according to AgriHQ senior dairy analyst Susan Kilsby.

Prices for whole milk powder on GDT have increased 74% since early July amid declining milk production and increased demand. Fonterra, the world's biggest dairy exporter, says it will increase the volume of whole milk powder offered at next week's auction as it looks to generate higher returns in response to strong demand.

It will offer 12,120 tonnes of whole milk powder, 550 tonnes more than it had previously forecast with an extra 300 tonnes added to Contract 2, which the futures contract settles against.

"Fonterra is moving product into whole milk powder and away from the other products as whole milk powder is delivering greater returns at the moment than the other products," Ms Kilsby says. "Having extra volume in there may take a little bit of the heat out of that product so we are expecting a pretty similar result to last auction at this point for whole milk powder."

By contrast, the amount of skim milk powder on offer at the next auction has been reduced, reflecting the price differential between the two products.

"There is a lot of skim milk powder sitting around the world, particularly in Europe and also in the US, but in terms of whole milk powder, there's just not a lot of product around and so it makes sense for Fonterra to try and direct a bit more milk into whole milk powder at the moment," Ms Kilsby says.

A decline in New Zealand's milk production this season gave Fonterra more options for production at its factories, giving it more flexibility to than usual at this time of year, she says. 

While whole milk powder futures contracts from January through April are trading at a discount to their previous GDT prices, Mr Kilsby says there are generally less volume traded through those contracts, meaning they are considered less of a market indicator for future prices.

(BusinessDesk)