Dairy futures signal 6% gain at next GlobalDairyTrade auction, OMF says

Friday 20th November 2015

New Zealand whole milk powder futures contracts advanced, suggesting prices for the commodity may gain at the next GlobalDairyTrade auction.

The price for whole milk powder, which is key to Fonterra Cooperative Group's payout to farmers, has declined for the past three consecutive GDT auctions. At the most recent event on Nov. 17, the whole milk powder index sank 11 percent to US$2,148 a tonne, its lowest level since Sept. 1.

However a pickup in the NZX futures market the past two days has pushed up the price of contracts between January and May, rebalancing the curve and suggesting the GDT whole milk powder index may bounce 6 percent at the next overnight auction on Dec. 1, according to dairy futures advisory firm OMF. The December whole milk powder futures contract last traded at US$2,080, compared with January 2016 at US$2,300, and May 2016 at US$2,475.

“There’s generally a bit of a shift higher across the curve - perhaps the market overreacted after the recent GDT and the whole curve went into what they call ‘backwardation’, where the front contracts are higher than the back contracts, so it’s been a bit of a correction,” said OMF dealer Daniel Crawford.

“That largely drove the shift in the curve and in addition to that, we have definitely seen some buying come in, not necessarily from a hedging perspective, perhaps from traders looking to take some profit on short positions that they had on in the market,” Crawford said, referring to ‘short’ bets where traders speculate an asset will decline in value.

“There’s definitely more buying than selling in the futures at the moment, which could suggest that we might see some more demand,” he said.

Some buyers may be betting the risk of an El Nino drought will crimp future production which could push up prices, he said.

Skim milk powder futures were also active, OMF said.

BusinessDesk.co.nz

Comments from our readers

No comments yet