This week dairy futures prices have surged off their lows, according to New Zealand bank ASB’s Rural Economist, Nathan Penny.
He says the price for the November contract for example has this week surged around 30% versus the comparable auction price.
“Markets have begun to bid prices higher on the likelihood that New Zealand production will fall this season compared to last.
“Moreover, with Fonterra reducing by a third the forecast WMP volume on offer at next week’s auction, the price lift may not stop there, he said.
Penny said that on this basis, he expects dairy prices to rise at next week’s GlobalDairyTrade auction and said futures pricing this week suggests a rise for whole milk powder of greater than 10%.
However, there are risks, he warned.
He said this week’s Chinese currency devaluations and associated market uncertainty could spill over to dairy markets.
“If this uncertainty does spill over, then this would put a spanner in the works of the long-awaited lift in dairy auction prices,” he said.
Fonterra GDT volume cut
Also this week, Fonterra announced that it is significantly reducing its GlobalDairyTrade (GDT) offer quantity forecasts for the next 12 months.
Since its inception in 2008 Fonterra has traditionally been the biggest volume seller on the platform and today’s announcement will see the volumes it offers reduce by a third.
In a statement, the world’s largest co-operative has said the forecasted offer volumes over the next 12 months for New Zealand products have been decreased by 56,045 metric tonnes.
A 62,930 metric tonne decrease is forecast over the next three months and 6,885 metric tonnes of planned volumes being added back later in the year in anticipation of changing market conditions.
