Uptick on cards for dairy price

Signs look good for Fonterra that dairy prices will bounce in tomorrow’s GlobalDairyTrade (GDT) auction.

Wholemilk futures prices have rallied on the prospect of less product being put up for sale by Fonterra, suggesting physical prices may start to rebound after sharp falls in each of the past three events.

Dairy futures prices were already firming in advance of last Friday’s announcement from Fonterra that it was significantly reducing the amount of product it puts up for sale on the GlobalDairyTrade auction platform over the next 12 months. Since August 5, Fonterra has reduced the volume of wholemilk powder it intends to sell on GDT over the next 12 months by 12 per cent. Fonterra’s move comes as expectations emerge that New Zealand production may start to decline this year, which would help to clear a path towards higher prices.

AgriHQ dairy analyst Susan Kilsby said Fonterra’s move would help market sentiment but would not, by itself, be enough to turn the market around.

“We need to see a global slowdown in milk production before a sustained recovery in the market can happen.”

Nigel Brunel, director of financial markets at OM Financial, said futures pricing suggested wholemilk powder prices would rally by 15 per cent tomorrow.

Bids for the September contract were at US$1940, up about US$500 from the equivalent GDT price at the last auction on August 5.

Since February, the physical price of wholemilk powder has gone from US$3272 a tonne to US$1590 a tonne — a 51.4 per cent decline.

BNZ said in a commentary that recent futures pricing offered “a glimmer of light at the end of the tunnel”.

ANZ said dairy market commentators have turned “almost uniformly” bearish.

“Dairying has turned into a political football and we note that it’s often darkest just before dawn,” the bank said. “So some subtle contrarian indicators are now pointing up.”