Summary
Milk powder prices continued to strengthen at the latest Global Dairy Trade (GDT) auction, giving dairy farmers confidence in a farmgate milk price of NZ$10 per kilogram of milk solids. Whole milk powder rose 5.9 percent, the largest gain this year, while skim milk powder added 3.1 percent. Gains outpaced declines to push the GDT price index up 3 percent, the biggest single increase since February.
NZX dairy insights analyst Rosalind Crickett said the latest GDT result significantly exceeded expectations in both futures and spot dairy markets. China bought 59 percent of the supply, driving skim milk powder prices to their highest level since June 2022. By contrast, NZX said dairy fat products are in surplus across major trading countries including Europe, the United States, Argentina and New Zealand.
At the peak of the current season, New Zealand dairy farmers are looking to processors to lock in these elevated international commodity prices and the low NZD/USD exchange rate; through appropriate hedging, companies can extend the positive effect and lift milk price expectations to NZ$10 or higher.
Commentary
Whole milk powder prices jumped 5.9 percent and skim milk powder rose 3.1 percent at the latest Global Dairy Trade (GDT) auction, lifting the overall index by 3 percent, the largest gain since February. Chinese buyers took 59 percent of the supply, pushing skim milk powder prices to their highest since June 2022. The result far exceeded futures and spot market expectations, giving New Zealand dairy farmers confidence in a farmgate milk price of NZ$10 per kilogram of milk solids.
Fonterra, New Zealand's largest dairy company, derives about a quarter of its global revenue from Greater China, so a recovery in Chinese demand directly benefits its raw milk pricing. About 95 percent of New Zealand's dairy production is exported, with China the largest single market, and stronger milk powder prices provide a significant boost to the wider economy. However, dairy fat products are in surplus in Europe, the United States, Argentina and New Zealand, highlighting a divergence in the global dairy market: demand for protein-based products is firm while supply of fat-based products is ample.
For small and medium-sized New Zealand business owners, elevated milk powder prices may raise local raw milk costs and squeeze processing margins for fat-based products such as cheese and butter. At the same time, the low NZD/USD exchange rate enhances export competitiveness, but rising costs for imported packaging materials and energy may offset some of the gains. If processors lock in current high prices through hedging, they can extend the positive effect, but they need to watch for changes in Chinese purchasing pace and the risk of price correction as global supply recovers.
Large co-operatives such as Fonterra typically hedge part of their exposure 12-18 months ahead, and smaller processors could learn from their risk management strategies by using NZX dairy futures tools to lock in margins. In addition, strong Chinese demand for skim milk powder may be linked to the recovery of domestic pig herds and substitution with whey powder for feed, a structural factor that could continue to support prices.
Keywords: GDT auction, farmgate milk price, whole milk powder, skim milk powder, dairy price index, Chinese purchasing, NZX, hedging
Photo by Kai_Vogel on Pixabay
Source: farmersweekly.co.nz
Disclaimer: This article is compiled from publicly available sources for general information only. The analysis and commentary are editorial opinions. MiDeer Observer does not guarantee the accuracy or completeness of the information provided. Readers should seek independent professional advice before relying on this content, or contact us for more information.
