Milk powder prices may reach new heights in 2017

Ciaran Moran

Ciaran Moran

Prices dipped marginally at the Global Dairy Trade auction this week.

Overall prices slipped 0.5%, with Whole Milk Powder (WMP) prices falling 0.8%. 

However, according to Rural Economist, Nathan Penny from ASB bank in New Zealand four out of the seven products he monitors posted rises, and SMP prices were unchanged.

“The relative WMP weakness reflects Fonterra’s move to increase its offerings of WMP at the expense of SMP and milkfats.

“This move is not surprising given that WMP is now trading at a premium to SMP of a little under US$1,000/MT.

Looking over the year, Penny highlights that prices have surged, particularly since July. 

For example, he says after trading at very low levels over the first half of the year, WMP prices jumped over 76% over the final six months.

“In our view, WMP prices have further to go, and may challenge US$4,000/MT in the New Year.”

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In particular, he expects the data on NZ and EU production are set to get worse before they get better.

“For example, we expect NZ production to fall 5% over the season as a whole from the 3.7% decline for the season to date,” he said.

EU milk powder tender

Just 0.2% of the 20,000 tonnes of EU intervention milk powder offered for sale was bought at the first auction of the stock in recent weeks.

Last month the European Commission announced its proposal to go ahead with a sale of Skimmed Milk Powder out of intervention following agreement from Member States.

The Commission said the proposal was on the back of encouraging signs of recovery being seen on the European milk market, with an increase of about 10pc of the average price paid to producers in the last three months.

It said In order to test the market reaction, the quantity of product concerned by the tender procedure is limited, corresponding to only 6pc of the total amount of 355,000t of SMP stored and taken off the markets since the opening of the measure in September 2014.

Under this tender procedure, European operators will have until 13 December to submit their bids to national authorities.

The outcome of the tender process was that only 40t of the almost 20,000t offered was tendered for with the first minimum price set at €2,150/t. Only two countries, Denmark and the UK, tendered for the product.

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