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Skim milk price spike sparks GDT probe

NZ Newswire logoNZ Newswire 9/03/2018 Jonathan Underhill

Global Dairy Trade, the dairy products trading platform owned by Fonterra, is looking into a price spike in ultra-high temperature skim milk powder at this week's auction.

On the surface it looked to reflect strong demand from some buyers for immediate delivery.

The SMP Price Index Contract 1, which is skim milk powder for delivery in April, jumped 44.8 per cent at the GDT auction compared to the previous sale.

The only product available in that contract was Fonterra's UHT powder, which jumped to US$2,910 a tonne.

The price spike is out of step with contracts 2 through 5, with price movements ranging from a 0.3 per cent drop to a 4.5 per cent gain.

Skim milk power has been on a downward trend from its highs in late 2013, with prices suffering because of increased supply from Europe.

The benchmark SMP price was at US$5142 a tonne in April 2013, compared with US$2051 a tonne this week, which was itself a 5.5 per cent rise from the auction a fortnight ago.

In a short statement on the GDT website, the auction platform said it "has initiated a review of the factors leading to price outcomes for Skim Milk Powder Ultra High Temperature (SMP UHT) product in contract periods 1, 2 and 3 in Trading Event 207".

''To provide assurance to market participants, a summary of findings will be published" before the next auction on March 20.

Nigel Brunel, a director at OMF and a member of the Oversight Board, said the move was unusual but not unheard of.

"It appears, from observation, that a few buyers needed UHT for instant delivery."

While the GDT platform had performed as it should, there had been "market chatter" in the wake of the auction on whether it had been a mistake, or what traders call a "fat finger".

OMF is the most active trader in the NZX dairy futures market, accounting for about 60 per cent of trading.

Mr Brunel says as an experienced market participant, "my suspicion would be that someone needed that product now and they paid up for it".

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