The dairy market steadies in April

UPFRONT MARKET VIEW

Dairy market steadies in April

Words by: Amy Castleton

April was a relatively quiet month in terms of dairy commodity prices, with little change at either of the month’s Global Dairy Trade (GDT) events. Prices rose just 0.3% at the April 6 auction, and eased 0.1% at the April 20 auction – thus leaving prices pretty much where they were a month earlier, on balance.

We’re at a time of the year where Southern Hemisphere production starts to wind down, while the Northern Hemisphere is entering its peak. It typically is a pretty quiet time of year for the dairy market.

New Zealand milk supply seems to be tracking along okay, though soil moisture % change in the GDT price index The world is yours: While demand from Chinese buyers for dairy commodities lessened at the April 6 GDT auction, other regions stepped in to take China’s place. levels aren’t brilliant in a lot of areas. The 15.0% East Coast is especially dry for this time of year, and particularly in the South Island, PERCENTAGE CHANGE IN THE GDT PRICE INDEX while Taranaki is wetter than usual for 10.0% this time of year. Conditions were largely reasonable through summer, however, 5.0% which should keep autumn production going. The NZX forecast for full season 0.0% milk production is +0.1% at the time of writing, virtually unchanged from last -5.0% season.

In Europe, French and German production has been falling over recent -10.0% 2 6 5 2 7 4 2 Jul 6 3 1 5 3 7 4 3 7 5 2 7 Jul 4 1 6 3 1 5 2 2 6 months; however this is now reportedly Jan 2019 Feb 2019 Mar 2019 Apr 2019 May 2019 Jun 2019 2019 Aug 2019 Sep 2019 Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 2020 Aug 2020 Sep 2020 Oct 2020 Nov 2020 Dec 2020 Jan 2021 Feb 2021 Mar 2021 Apr 20212019 2020 2021 evening out, with milk supplies through Europe’s peak expected to be at least in take China’s place, illustrating that there end of March), compared to a $7.84/kg MS line with last year. Steady milk supplies out is good demand for dairy commodities forecast for the 2020-21 season (calculated of Europe should help keep commodity outside of China as well. in early April). At the time of writing, the prices steady over the next few months, Traders on the NZX Dairy Derivatives Derivatives market had the September until attention turns back to how Southern market seem to expect that commodity 2021 milk price futures contract at $7.64/ Hemisphere production is tracking prices will fall over the remainder of kg MS, and the September 2022 contract in our spring. 2021, though much of the downward at $7.50/kg MS. It’s likely Fonterra will be

Demand has been very trend in forward curves for dairy more conservative when it announces its China-led in recent months. commodity futures seems to be opening forecast in May, but an opening High domestic prices and built around NZ’s spring. It would forecast of around $7/kg MS for the 2021increased dairy consumption be expected that a lift in our milk 22 season looks fairly likely. At this point have increased demand for supplies – albeit seasonal – will the market feels balanced. Despite the imported dairy. On top of put some pressure on commodity current high prices it seems that it will take that is the need to ensure food Amy Castleston. prices. some sort of economic shock for anything security, meaning more stock In saying this, the outlook for next to move too significantly. building. However Chinese buyers did season’s milk price remains quite positive. step back a little at the April 6 GDT event. The most recent NZX forecast for the 2021- • Amy Castleton, senior dairy analyst at Buyers from other regions stepped in to 22 season is $7.38/kg MS (calculated at the NZX Agri.