Broker Chat – HighGround Dairy

This quarter we hear from HighGround Dairy, Director of Operations, Alyssa Badger who provides an update on the global dairy market. 

Trade headlines, record milk collections within New Zealand and primarily lower prices around the globe permeated much of the 2018 calendar year. However, the tide appears to be shifting with Global Dairy Trade prices beginning to rebound just as 2018 was coming to a close and entering the New Year on yet another strong move to the upside. Weather conditions have been erratic, global milk growth is slowing and China’s demand for dairy has been unwavering.

Despite negative expectations derived from weaker Global Dairy Trade price activity throughout the second half of the year, China’s 2018 dairy imports achieved record volumes through November. China has put in overtime expanding business relationships and sourcing product outside of countries the market has become accustomed to seeing. The US-China trade war forced the hand of the Chinese to speed up trade talks with other nations, including India and the EU, and improve upon existing relationships with Latin America and Belarus.

Q4 WMP trading volumes reached 60,426 contracts on NZX, 9% stronger than prior year and a 22% jump from 2016. However, Fonterra’s C2 WMP prices remained subdued throughout Q4, trading within the tightest range for the quarter on record ($195 range) as buyers were not aggressive and supplies were ample. Skim milk powder/nonfat dry milk values strengthened in both Hemispheres for much of the calendar year with Fonterra’s C2 medium heat values at the highest level since Feb 2017. EEX skim milk futures are at June 2017 levels and US nonfat dry milk futures are nearing two-year highs. The depletion of inventories within the EU’s Public Intervention stocks due to successful SMP tenders have helped drive the market higher.

Over the past four GDT events, Fonterra’s unsalted C2 butter price has jumped $705/MT or +20% while AMF has increased $710/MT or +16% during the same timeframe. Lower offer volumes from Fonterra due to a shift in production toward whole milk powder aided the market; however, there remains a historically strong discount within NZ against both EU and US butter prices, with plenty of room for the market to continue running higher.

Paired with the surprisingly strong imports into China, the beginning of Q4 was met with Top 5 export region (EU, US, NZ, AU, Argentina) milk production growth falling below 1% in October (+0.7%) for the third time this year. With Australia continuing to report massive losses, Argentina beginning to reflect a slowdown and unpredictable New Zealand weather conditions, it is likely that volumes slowed further into November, which has helped bring slight support back into the butterfat complex as well. The shift in sentiment into 2019 has been a seemingly positive one with demand expected to increase further, creating a competitive landscape for the global dairy industry.


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