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NZ milk powder futures drop as Fonterra lifts GDT volumes, signalling prices will fall

27 Mar 2015

New Zealand whole milk powder futures dropped after Fonterra Cooperative Group said it will increase the volume of product it puts up for sale on the GlobalDairyTrade platform, suggesting prices may extend their decline in next week's auction.

Auckland-based Fonterra, the world's largest dairy exporter, has increased the amount of whole milk powder it will offer at the upcoming April 1 auction in Contract 2, which covers product with a June shipping date, by 14 percent to 4,965 metric tonnes. Whole milk powder futures for June delivery dropped US$230 a tonne to US$2,400 a tonne today. At last week's GDT auction, whole milk powder fell 9.6 percent to US$2,928 a tonne.

Fonterra yesterday announced it would add an additional 12,140 tonnes to the GDT auction over the next 12 months, with 90 percent of the increased volume added in the coming three months. Most of the increase was in whole milk powder, with an additional 6,230 tonnes added over the next three months, it said. Fonterra has been increasing volumes on the GDT as increased rainfall in New Zealand lessens the chance of drought and boosts milk production. It also revised up the amount of skim milk powder, butter and anhydrous milkfat it will offer for auction.

"Fonterra has added additional volume onto the GDT in general, but particularly onto the Contract 2 for whole milk powder," said AgriHQ senior dairy analyst Susan Kilsby. "The extra volume is likely because they are expecting more milk than they were previously after they changed their milk production forecast."

AgriHQ's Kilsby said prices are likely to remain weak in coming months before picking up again.

"There's not a lot to support the market at the moment as there's still a lot of milk around and there's nothing really supportive for the next month or two," she said. "So long as extra volume is being added into GDT, that's going to put downwards pressure on prices.

"Over the medium to longer term we are expecting prices to improve again," she said. "They are essentially at unsustainable levels at the moment so that is slowing global milk production and it's also stimulating demand for product. Over the medium to longer term we definitely expect prices to go up but in the next month or two there's nothing really at the moment to support prices."

Many buyers were on the sidelines as they awaited the removal of European milk quotas at the end of this month, to see if increased production could further weaken prices, she said.

The New Zealand dollar this morning touched a four-day low of 75.51 US cents on concern about the outlook for dairy, New Zealand's largest commodity export. It was recently trading at 75.87 US cents.

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