Dairy futures advisory firm OMF says whole milk powder futures contracts advanced, which suggests 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 reports BusinessDesk.
At the most recent event on November 17, the whole milk powder index sank 11% to US$2,148 a tonne, its lowest level since September 1, according to BusinessDesk.
However, it says 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% at the next overnight auction on Dec. 1, says 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 according to BusinessDesk.
“There’s 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’,” says OMF dealer Daniel Crawford.
“This is where the front contracts are higher than the back contracts, so it’s been a bit of a correction,” he says.
“That largely drove the shift in the curve and in addition to that, we have seen some buying come in,” says Crawford.
“It is not necessarily from a hedging perspective, perhaps from traders looking to take some profit on short positions that they had on in the market,” says Crawford, referring to ‘short’ bets where traders speculate an asset will decline in value.
“There’s more buying than selling in the futures at the moment, which could suggest that we might see some more demand,” he says.
“Some buyers may be betting the risk of an El Nino drought will crimp future production that could push up prices”, says Crawford.
