Futures market signals to further dairy uplift in September

Latest trading of dairy futures contracts suggest a further uplift in dairy markets in the coming weeks.

Many dairy market analysts are now commenting that dairy prices have turned a corner and view global dairy market weakness in early August as ‘low tide mark’ for the sector.

Since the Fonterra announced its $3.85/kg milk price forecast, dairy auction prices have rebounded.

Last weeks Global Dairy Trade auction saw a whole milk powder (WMP) price lift, approaching 20%, with an overall auction price lift of nearly 15%.

Moreover, according to Kiwi bank ASB latest dairy futures prices have picked up the price baton and run.

It says recent, WMP futures prices are pointing to a similar, if not larger lift, at the next auction on September 1.

So what has led to the turnaround in fortunes?

According to ASB the circuit breaker came in a welcome change in dairy market sentiment.

It says market focus has shifted from dairy’s global glut and Chinese sharemarket concerns to a potential fall in New Zealand production this season and reductions in Fonterra’s auction volumes.

As a result, ASB expects the prices to recover much of the preceding three auction’s lost ground.

However from there, it says further lifts become more difficult and dependent on a material slowing in both New Zealand supply and global supply more generally.