Milk futures accelerated their rebound on Wednesday, as investors downplayed a fifth successive dip in price at GlobalDairyTrade auction as fuelled by a technicality in the whole milk powder market.

NZX SGX whole milk powder futures for June traded up 5.6% in late deals to $4,120 a tonne, taking to 9.4% their recovery from a low last Thursday, and representing the contract’s strongest performance in more than a year.

The July lot stood up 2.9% at $4,150 a tonne, while the August contract gained 4.3% to $4,215 a tonne.

The headway contrasted with a further decline in prices at Tuesday’s GlobalDairyTrade (GDT) auction, where the GDT index shed 2.9%, to take its decline since the March 1 event to 15.9%.

Prices of whole milk powder (WMP) itself, which accounts for the vast majority of product traded at GDT, were reported down by 4.9%, declining by 17.3% since the start of March.

‘Seriously disrupted’

Recent price weakness has been attributed largely the weakened economic outlook China, the top dairy importer, following anti-Covid lockdowns.

Economic data for last month show a slowdown to 4% in Chinese export growth, from 15% in March, a tumble of 11% in retail sales, and a collapse of 44% in construction starts.

“It’d be surprising not to see auction buyers get a bit vexed in that kind of environment,” said Nathaniel Keall, economist at ASB.

He added that, “the lengthy (and stringent) restrictions in Shanghai have seriously disrupted typical supply and consumption patterns,” said Nathaniel Keall, economist at ASB.

‘Positive sign’

However, at Tuesday’s GDT, a one-off factor was also seen as fuelling the decline, as Fonterra – the New Zealand-based dairy giant which owns the auction platform, and supplies most of the product sold through it – channelled extra instant whole milk powder through the event, to exploit recent high prices of the product.

The shift “helped drive a big decline in instant WMP prices” on Tuesday, Mr Keall noted.

Prices of regular WMP, however, rose in what he termed “a positive sign they may be finding a floor”.

The anomaly was reflected in a rise of 0.5% in the average price of whole milk powder at the auction, in contrast to the 4.9% decline in GDT’s whole milk powder index.

‘Prices to regain lost ground’

Mr Keall added that ASB was “still bullish on the [dairy] price outlook – global supply remains very tight and demand is fairly robust”.

Many other commentators are upbeat too over values, given constraints in milk production, which rose by a marginal 0.1% in the European Union in the first two months of the year, while shrinking by 1.0% year on year in the US in the January-to-March period.

Meanwhile, Australian output will fall by 4.6% this year, a US Department of Agriculture briefing overnight said, attributing the decline largely to a switch in land from dairy to other sectors in the face of a labour squeeze exacerbated by the pandemic.

For key exporter New Zealand, the USDA cautioned earlier this month that “existing dry conditions in key regions may impact pasture conditions come [southern hemisphere] spring”, after a 2021-22 during which output is running 3.8% below year-before levels.

Coupled with observations that “global production/supply is tight… an assumption is that the potential scenario could support milk and dairy commodity prices”.

Westpac said that “looking to the second half of 2022, we expect prices to regain some lost ground as market fundamentals remain strong.

“We also expect a boost to prices when China’s Omicron wave eventually passes and the related Covid restrictions are relaxed.”

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