Milk futures tumbled, after a “weak” GlobalDairyTrade auction which confirmed 2023 as the worst performer in eight years, with sentiment undermined too by a forecast for world milk production returning to growth next year.

SGX NZX whole milk powder futures for January fell by 5.1% to $3,260 per tonne, expanding its discount to later contracts, with the February lot shedding 4.3% to $3,325 per tonne and March futures falling by 4.0% to $3,375 per tonne.

Skim milk powder futures for January dipped by a more modest 1.3%, but to a contract low of $2,990 per tonne.

The February skim milk powder lot, in easing by 1.8% to $2,980 per tonne, and the March contract, down by 2.8% at $2,950 per tonne, also fell below $3,000 per tonne for the first time.


The declines followed Tuesday’s GlobalDairyTrade (GDT) auction at which prices fell by 3.8%, contrary to the rise that futures markets had anticipated, and a result termed “weaker than expected” by ASB.

The bank added that prices of whole milk powder, which comprises most of the volumes traded GDT, “were disappointing” in falling by 4.0%, rather than showing the circa 1-2% gains that futures had priced in.

Nathan Penny at Westpac, noting that “prices were weak across the board”, from butter to cheese, said that the auction “result was below our expectations”, although struggled for a cause for the disappointment

“It’s hard to pin down a catalyst for the fall. There has been no market news to drive this fall.

“Possibly, some buyers may have taken an early holiday and thus been absent from the auction,” he said noting a reduced number of buyers from the Middle East and South East Asia.

The total number of bidders at the event, at 149, compares with an average of 157 for the second half of 2022, on GrainPriceNews calculations.

Output prospects for 2023

Wednesday’s price falls also followed a briefing overnight by the US Department of Agriculture which, in its first estimates for 2023, forecast global cows’ milk output expanding by 1.0% – more than offsetting a 0.2% decline this year to set a record high of 549.5m tonnes.

While output will ease by 0.6% by 143.0m tonnes in the European Union, where a “decline in cow numbers has eroded… production”, US volumes will expand by 1.1% to a record 104.1m tonnes, the USDA said.

Among other major exporters, output will expand by 0.8% in Argentina, “reflecting a return to normal weather conditions, improved availability of inputs, and investments in comfort-related technology and more efficient husbandry practices”.

However, Australian volumes will dip by 0.9%, as “dairy farms continue to face labour shortages which will prevent expansion in cow numbers,” while soaring energy and fertilizer costs have caused farmers “to scale back cow numbers and either partially or fully convert to beef cattle production”.

New Zealand volumes were expected to ease by 100,000 tonnes to a 10-year low of 21.0m tonnes, with milk yields “forecast to be impacted by a third consecutive La Niña weather pattern, as well as a smaller feed base, impacted by a cold and wet winter slowing spring pasture growth”.

Chinese expansion

Signally, milk output in China, the top importer, was forecast soaring 4.3% to 40.90m tonnes, backed by “government policies supporting dairy production, large-scale investments by dairy companies, and the importation of over 1.2m head of high-quality cattle during the last five years”.

This will limit China’s import needs, with purchases of whole milk powder (WMP) in particular seen limited by expansion in domestic output.

China’s whole milk powder imports “are forecast to remain unchanged at 700,000 tonnes, as domestic WMP production and stocks should satisfy consumption growth in 2023,” the USDA said.

‘Demand and prices to improve’

Westpac forecast 2023 starting slowly for Chinese imports, remaining constrained by the hangover to demand from this year’s tough anti-Covid restrictions, before accelerating in the second half.

“As Chinese Covid restrictions are gradually eased further, we expect global demand and prices to improve,” Westpac said, forecasting Chinese economic growth next year of 6%, up from “just” 3.5% this year.

ASB said it would early next year to review its forecast for the benchmark New Zealand farmgate milk price averaging NZ$9.40 per kilogramme of milk solids in 2023.