The future price of whole milk powder (WMP) has surged in the last 10 days as markets react to the spike in prices at last week’s GDT result in New Zealand. Since last Tuesday’s GDT auction, December, January and February future contracts for WMP have increased in value by 11%, and are up almost 18% in the last fortnight.

The sharp increase in the WMP futures market reflects the recent price gains for milk powders on the GDT but it’s also a reaction to a tightening global supply of whole milk powder in particular.

Last week’s GDT auction in New Zealand saw the benchmark dairy index surge 11.4%, with the increase primarily driven by a spike in WMP prices. The average selling price of WMP, which accounts for about 50% of all product sold on the GDT, rocketed almost 20% at last week’s auction to $3,320/t.

This sharp increase in WMP prices is all supply driven. New Zealand is the world’s largest exporter of WMP and recent noises from the country’s largest dairy processor, Fonterra, that milk collections are declining sharply have helped to push up milk powder prices on the global market.

The processor cited a severe fall-off in milk supply due to the wetter than normal spring in New Zealand. In the important Waikato region, Fonterra says milk collections are back 14% in October.

As a result, Fonterra has reduced its forecast WMP supply for all GDT auctions over the coming year by a total of 10,200t. For this week’s GDT auction alone, Fonterra reduced its WMP offering by more than 18% to 14,600t compared with the last auction.

WMP prices are on an upward curve as dairy traders and buyers will have looked at the emerging supply picture in New Zealand, and are now moving to secure supplies sooner rather than later in the expectation that prices will rise further in the weeks and months ahead.

In terms of skimmed milk powder (SMP), prices lifted 6.5% at last week’s GDT which is encouraging. However, as long as there is 350,000t of SMP still sitting in intervention in the EU, prices will always struggle to gain any real upward momentum. Hence the reason why the premium between WMP and SMP prices is now almost $1,000/t.

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