Despite improved demand for powder imports from China since the start of 2016, global milk powder prices remain extremely weak at present. If the futures market is anything to go by, then the near-term outlook for powder prices remains bleak.

Over the last fortnight, futures prices for whole milk powder (WMP) traded on the New Zealand exchange (NZX) have continued their downward trend, with prices weakening by as much as 7%. With the next GDT auction taking place on Tuesday this week, this decline in WMP futures prices points to another dip in the benchmark dairy index.

Futures prices for WMP can act as a proxy for the performance of the biweekly GDT, as WMP accounts for half of all product sold via the auction platform. Even with New Zealand’s production season coming towards its back end, which leads to a tightened product supply on offer at the GDT auction, dairy commodity prices have failed to find any upward momentum due to weak buyer interest.

EU milk supply

While buyer demand remains stagnant, the milk production tap continues to flow in Europe. The latest data from the EU’s milk market observatory shows that milk output from the 28 member states continued to surge in the first month of 2016. Milk collections across the EU for January increased by 5.6%, or 700,000t, compared with January 2015.

Despite the poor weather, Irish dairy production continues to expand strongly, with milk output growing in January by almost 20% – among the highest percentage growth in Europe.

In volume terms, the biggest increases in milk production came from Denmark and the Netherlands, despite FrieslandCampina paying farmers a bonus from mid-December through to the end of January to dampen output.

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