Ahead of tomorrow’s GDT auction, dairy giant Fonterra has announced changes to its product volumes which tell us a lot about the evolving supply picture in New Zealand. With the country experiencing a wetter than normal spring, milk production on many New Zealand dairy farms has slowed sharply and milk collections in October are well back, according to Fonterra. October is the month when milk output in New Zealand hits its peak. As a result of the tightening milk supplies, Fonterra has been reducing its forecasts for the amount of product it will be able to sell at this week’s GDT auction, as well as for the rest of the year. The reduction in product volumes is likely to help dairy commodity prices continue their recent upward momentum.
Ahead of tomorrow’s GDT auction, dairy giant Fonterra has announced changes to its product volumes which tell us a lot about the evolving supply picture in New Zealand. With the country experiencing a wetter than normal spring, milk production on many New Zealand dairy farms has slowed sharply and milk collections in October are well back, according to Fonterra. October is the month when milk output in New Zealand hits its peak.
As a result of the tightening milk supplies, Fonterra has been reducing its forecasts for the amount of product it will be able to sell at this week’s GDT auction, as well as for the rest of the year. The reduction in product volumes is likely to help dairy commodity prices continue their recent upward momentum.
For tomorrow’s GDT auction, Fonterra has reduced the volume of whole milk powder (WMP) it will offer for sale by 14%, or 2,050t, to a little over 12,500t. At the GDT auction two weeks ago, Fonterra reduced its offering of WMP by 18% to 14,600t, which resulted in WMP prices rocketing almost 20%. For the 12 months ahead, Fonterra has reduced its forecast WMP supply by more than 10,000t.
The continued reduction in the volume of WMP on offer at the GDT auction is likely to help boost prices further as dairy buyers and importers move to secure supplies in the face of the tightening milk supply picture in New Zealand. As New Zealand accounts for more than 50% of WMP exports on the global market, the country’s milk output is a critical factor in market sentiment and price movement.
Indeed, the severe 7.8 magnitude earthquake that hit New Zealand at the weekend is likely to cause further supply concerns in New Zealand. Fonterra has already said that some farmers in the south island may have to dispose of their milk and it will not be possible to collect their milk due to the damage to roads and power outages from the earthquake.
The expectation of lower WMP volumes over the coming months has lifted dairy futures markets in the last month. Since the beginning of November, WMP futures contracts for December, January and February have increased in value by 11% and point to another increase in WMP prices at tomorrow’s GDT auction.
This is a subscriber-only article
SHARING OPTIONS: