Recovery in milk prices looks set to be a slow burner
Published 28/10/2015 | 02:30
Many people have been surprised at the 3.1pc dip in the recent Global Dairy Trade Auction. There were many reasons why the market might have been expected to continue its 'bull run' which had developed since August.
Buyers were expected to be looking to secure supplies. There has been widespread anticipation that the New Zealand season will see a significant year on year reduction due to less supplementary feeding, with the additional litres unlikely to make money at forecast prices.
High cull cow prices will also see reducing cow numbers and the poor weather which has kicked off the season might be expected to worsen due to the effects of a strong El Nino effect which is already starting to have an impact in Australia.
As the tariff free period for New Zealand into China looms and we enter the holiday season in the US, surely prices should be rising not falling.
So why the decline now?
In total, $1,234 has been added to the price of whole milk powder between August 4 and October 6 - that's 77pc. But the EEX futures market had been indicated a softening of prices going forward.
The sharp bounce in prices was at least in part due to the overshoot of prices on the way down when Southern Hemesphere players sold cheap to clear stocks.
This stock clearance came to a halt at a time when buyer sentiment started to look towards the likelihood of supply side damage due to very low milk prices. As a result the market rose fast but then got ahead of itself.