The outlook for global dairy markets was at its most bearish just over a month ago at the start of February, when the GDT index plunged by more than 7% to leave markets treading dangerously close to historical lows.Futures contracts for whole milk powder (WMP), a proxy for the performance of the biweekly GDT, continued to plummet in early February suggesting that further declines in global dairy markets were in the offing. However, the benchmark GDT index surprised markets in mid-February by recording less of a decline than anticipated and actually returned a positive result at the latest auction held last week.
The outlook for global dairy markets was at its most bearish just over a month ago at the start of February, when the GDT index plunged by more than 7% to leave markets treading dangerously close to historical lows.
Futures contracts for whole milk powder (WMP), a proxy for the performance of the biweekly GDT, continued to plummet in early February suggesting that further declines in global dairy markets were in the offing. However, the benchmark GDT index surprised markets in mid-February by recording less of a decline than anticipated and actually returned a positive result at the latest auction held last week.
A floor appears to have been put under the market at present although prices remain at a low ebb. Looking at WMP futures traded over the last week on the NZX derivatives market, the New Zealand-based futures exchange, it appears the market has stabilised somewhat but remains weak.
WMP is the key commodity traded on the GDT accounting for more than 50% of product sold and, as such, WMP futures are a decent gauge for the performance of an upcoming GDT auction. With April, May and June futures contracts for WMP improving by a little over 2% in price over the last week, it points to a steady outcome at next week’s GDT auction.
Global production
With some signs of improved buying demand from China in January, many will hope the glut in global dairy stocks can begin to be worked through. However, global production shows no signs of a significant decrease any time soon, with expanding European milk output the main driver.
To tackle the production side of the supply and demand equation, France has called on the European Commission to adopt a dissuasive policy to European dairy output in 2016 by incentivising farmers to cut milk production. France says that the EU could cut production by as much as 3%, removing as much as 2bn litres from the marketplace.
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GDT up as first signs of improved demand show
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