Talk of a recovery in European milk production, as well as persistent worries over Chinese demand, are prompting doubts over whether prices will recover at Tuesday’s GlobalDairyTrade auction, as futures suggest.
SGX NZX whole milk powder futures proved mixed on Monday, with the November contract slipping 0.7% to $3,575 per tonne, but the best-traded January 2023 lot edging 0.1% higher to $3,660 per tonne.
But prices for whole milk powder futures remained, by 0.1-2.4%,above those for respective contracts at the last GlobalDairyTrade (GDT) auction, two weeks ago, suggesting expectations of an increase at the next event, on Tuesday.
With anhydrous milk fat and butter futures also above their GlobalDairyTrade peers, futures suggest a small gain in the GDT index.
‘Worried about lockdowns’
However, broker StoneX, while acknowledging that the futures shows a GDT gain of 1.8%, based on last week’s values, forecast that prices would fall nonetheless on Tuesday, citing in part concerns over demand from China, the top dairy importer.
“There is still no sign that Chinese importers are coming back with any strength,” said Nate Donnay, StoneX director dairy market insight.
“Surging Covid cases following the Golden Week holiday have consumers in some cities worried about lockdowns again.”
While China’s farmgate milk price, an indicator of the strength of the country’ dairy market, “has been steady in recent weeks… under normal conditions, it should be seasonally increasing”.
‘Improved milk production’
Furthermore, there has been some erosion of the consensus of poor milk production in key dairy exporting countries, which has been viewed as a key support for prices, with August data for the US showing 1.7% growth year on year, and less downbeat expectations for European volumes too.
“Improved milk production in Europe, shifting from declines to flat against year ago, is likely contributing to the bearish sentiment” in dairy prices in the region, Mr Donnay said.
European Union whole milk powder prices fell by E2 per tonne in the week to October 9 to a seven-month low of E479 per tonne, European Commission data show.
British, French growth
The US Department of Agriculture reported that while Europe’s milk production is approaching its seasonally weakest point of the year, “some regions have had positive weekly milk delivery growth.
“Milk deliveries in parts of Germany continue to fluctuate with shifts in the weather, but weekly deliveries in France have been slightly above those of the previous year.
“In addition, September milk deliveries in Great Britain are thought to be above last-year levels.”
Great Britain deliveries for September, as based on daily delivery data, in fact rose by 0.6% year on year to 981m litres, accelerating towards the end of the month.
“In the final 10 days of the month, average daily deliveries were 33.3m litres per day, a 1.8% increase on last year,” the AHDB bureau said, noting that in September 2021, farmers had seen their margins squeezed by rises in feed and energy costs at a time of flat milk prices.
New Zealand woes
However, supporting prospects for prices at Tuesday’s GDT is growing pessimism over milk output in key exporter New Zealand, which is amid its seasonal high in production.
“As New Zealand milk production settles into October, sources are predicting another month of weaker-than-anticipated milk output,” the USDA said, noting talk of staff shortages and poor weather undermining productivity.
Data for last month may show “the lowest September milk output since 2017”.
Furthermore, Fonterra, which provides the bulk of product sold through GDT, has switched 8,000 tonnes of whole milk powder offerings from the October-to-December quarter to auctions in the first three months of 2023.
“This change is the result of both product mix optimisation and a slower-than-normal start to the season on-farm in New Zealand,” the co-operative said.
