Global Dairy Trade may post its first rise of 2016 tomorrow

The fifth Global Dairy Trade of the year takes place tomorrow and the latest dairy futures market suggests the auction could post its first rise in prices of 2016.

New Zealand bank ASB has said that the futures market hints that whole milk powder (WMP) may be up 6% in tomorrow’s auction.

WMP prices have remained weak in 2016. After the fourth Global Dairy Trade auction, prices dropped 3.7% putting overall WMP pries down 18% since the end of 2015.

Rural Economist with ASB, Nathan Penny says that it expects the auction to show the first price lift of the year and that this will provide some relief, at least in terms of sentiment, for farmers.

The four Global Dairy Trade auctions of this year have all posted losses.

Earlier this month, Penny said that the dairy price ducks refuse to line up.

“First, good growing conditions have moderated the anticipated dip in New Zealand production this summer.

“At the same time, global growth concerns and commodity market weakness continue to spillover into dairy markets and sideline buyers.”

The drop follows New Zealand production holding up better than expected, with the threat of an el Niño drought this summer all but gone, according to Penny.

He says that the larger WMP fall relative to SMP at this auction fits with this result being a (better) NZ production story.

ASB revised its milk production forecast to 3% below last season from its previous view of 6% below.

“Moreover, weak global sharemarkets and commodity markets are reinforcing dairy market weakness. In these market conditions, buyers prefer to sit on the sidelines and wait until prices bottom.

“With the above in mind, we note the dairy price recovery is proving more drawn out than anticipated,” he says.

However, Penny did say that the bank nonetheless, maintains the view that prices will lift over the course of 2016.