Whole milk powder futures tumbled, while those in butter extended their decline, as investors reacted to a drop in values at GlobalDairyTrade which had defied concerns over New Zealand weather.
Whole milk powder futures for October settled down 4.1% at $3,145 a tonne in New Zealand’s NZX market, falling from what had been a four-month high for a spot contract.
In Europe’s EEX market, butter futures for January, the best-traded contract, plunged by 4.5% to E5,350 a tonne, the lot’s lowest in nearly three months – and taking to 15% their plunge from a late-August high.
The falls came as investors digested the results of Tuesday’s GlobalDairyTrade auction, which showed overall dairy prices dropping by 2.4%, their largest drop in seven months.
The decline was led by reversals in values of dairy fat products, which have gained unprecedented premia over protein-based commodities, with butter values dropping 3.6% and those of anhydrous milk fat by 3.4%.
The drop in butter and anhydrous milk fat values came despite Fonterra cutting by nearly 5,000 tonnes, to 628,598 tonnes, its forecast combined sales of the products through GDT over the next 21 months, reflecting “strong global demand for fat products that has driven a realignment” of its overall sales mix.
The premium of whole milk powder to its fat-free peer skim milk powder dropped by 5.0% to $1,142 a tonne.
The falls in whole milk prices at GDT, which is run by New Zealand-based dairy giant Fonterra, were “a jarring contrast” to the performance of NZX futures in the product – which had risen ahead of the auction, said Tobin Gorey at Commonwealth Bank of Australia.
“Clearly the futures optimism has not been verified” at GDT, Mr Gorey said, giving precedence to the auction result.
“We tend to give more weight to physical trades than futures (especially cash settled ones) so the auction results are better guidance.”
In fact, it appeared that GDT price trend was “more like what physical whole milk prices prices did in Europe last week”.
Latest European Commission data also show butter prices in the European Union declining in the week to September 24, by E3 to E647 a tonne – the first week-on-week decline in values in six months.
‘Prices to push higher’
Nonetheless, Wednesday’s decline in whole milk powder futures removed only part of the premium over GDT values that they had run up ahead of the event, a gap Mr Gorey pegged at about 10%.
December NZX futures, for instance, closed at $3,150 a tonne on Wednesday, down 4.5% but remaining ahead of the average price of $3,033 a tonne for product sold for December delivery for GDT.
Indeed, some commentators remained upbeat on dairy price prospects, citing the setback to milk output in New Zealand, the top exporter, from wet weather, as highlighted by Fonterra earlier this week.
“Despite the dip in prices overnight, we see potential for overall prices, particularly for whole milk powder, to push higher over coming months,” ASB bank said.
“New Zealand weather has been poor, and production is reportedly back on last season.”
(Source – http://www.agrimoney.com/news/milk-butter-futures-fall-as-markets-digest-surprise-auction-retreat–11068.html)