Dairy auction disappointed - ANZ

Analysts at ANZ noted that the latest dairy auction disappointed and it may now take more than a New Zealand production downgrade and reduced GDT volumes to hold the milk price at $6.75/kg MS. 

Key Quotes:

"Prices fell for all products, apart from cheese. What was noticeable is that both the milk powder and milkfat curves were all in backwardation."

"That means that while there is still short-term supply- demand pressures, the market appears to be banking on a rebound in New Zealand supply and increases elsewhere (namely Europe). In New Zealand, it’s still a little early to tell, with things on a knife edge and could go either way."

"Pasture conditions remain very sodden in the North Island, but generally better in the South Island. But equally last year’s poor performance through the seasonal peak for milk production would appear difficult to repeat."

"This is especially the case with farmers using more supplementary feed to maintain pasture quality, cow condition and fill feed deficits. So all eyes will be on the weather for the next month or so. To us, last night’s auction really confirms that the only thing that has been holding WMP and butter prices up recently was short New Zealand supplies. While Chinese demand has been solid, it hasn’t been spectacular. Other Asian and Middle East buyers have stepped up to the mark, but have struggled to absorb the higher GDT supply (Oct is peak). All up, softer NZ production could still see a milk prices of $6.75/kg MS, but if not, it seems something around the mid- $6/kg MS is more likely."