FXStreet (Guatemala) – Analysts at ANZ noted that the Dairy price’s bounced off rock bottom overnight reducing the downside risk to Fonterra’s latest milk price forecast of $3.85/kg MS for 2015/16.
Key Quotes:
“The GDT-TWI rose an impressive 14.8%, with whole milk powder (+19.1%) and anhydrous milk fat (+26.6%) leading the way.”
“Fonterra’s strategy of changing its product mix and constraining supply sold via GDT seems to have at last found some price traction. Total WMP supply for the next 12 months has been decreased by 91,400MT (-19%) over the last two auctions, with much of the recent reduction front-loaded.”
“To provide perspective the change is equivalent to nearly twice the US annual exports and one quarter of Europe’s. Last night’s auction also took longer than normal and had a material increase in the number of participating buyers, suggesting some have been prompted into action by the recent rock bottom prices.”
“The question as always is – where to now?”
“New Zealand sourced product still looks extremely cheap versus other key global sources, especially for milkfat. We expect this should be price supportive with improved sentiment, but are mindful of the false rally that was seen earlier in the year.”
“Market fundamentals are going to have to continue to evolve favourably to elicit further price rises. The key to a sustained lift in prices is lower New Zealand supply and increased purchasing from China. Both have shown tentative signs of heading in the right direction in recent weeks, but further movement will be required to provide a sustained rally.”
“Milk powder prices need to head back toward US$2,200/t to deliver Fonterra’s $3.85/kg MS. Based on last night’s auction and other market intelligence, we have removed the downside risk to our 2015/16 milk price forecast, moving back to a $3.75-$4.00/kg MS range at this stage.”
“There is still plenty of water to flow under the bridge yet though (either way). Farmers need to be budgeting for the worst and hoping for the best, as this will help the financial recovery out the other side.”
(Market News Provided by FXstreet)