Results from Mar. 5 GDT auction showed continued resilience for the bullish trajectory of prices out of New Zealand. Across dairy ingredients, prices were up on average 3.3 percent, with particular strength in fat-containing products. Two core export commodities of Fonterra, anhydrous milkfat and whole milk powder, at 3.9 percent and 6.0 percent, respectively, led the charge higher on pricing while skim milk powder was the lone bearish standout at -4.3 percent.
Hot and dry conditions for New Zealand’s southern hemisphere summer are being blamed for nervousness across the complex as poor rains may hurt forage and pasture conditions for the herd. New Zealand is much more dependent on pasture for feed, so milk production is highly seasonal and strongly linked to weather. If forage deteriorates due to drought conditions and inadequate forage, we may see a marked drop in milk production as flush ends and cows dry off. This would obviously reduce late season production so buyers have been grabbing product while it is available, knowing that Fonterra will likely withdraw from the market if supply looks to be constrained.
Already rainfall deficits are resulting in soil moisture anomalies of 40 mm below average and drought-like conditions. There is talk that Western European milk production is starting to recover but also growing concern that North American springtime flush may be late due to extreme cold and harsh winter across the northern plains.
Soil moisture anomaly (mm) for March 7, 2019