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NZX milk futures fall from high after GDT

NZ NewswireNZ Newswire 22/09/2016 Tina Morrison

New Zealand milk price futures have fallen in the wake of the latest GlobalDairyTrade auction, having reached a record in the run-up to this week's sale, but remain above the payout level forecast by most of the country's milk processors.

The NZX milk futures contract for the 2016/17 season hit a record $5.65 per kilogram of milk solids ahead of the GDT overnight on Tuesday, and recently traded at $5.50/kgMS.

That's still above the base milk price forecast by the country's major milk processors, with Fonterra this week updating its forecast to $5.25/kgMS, while Synlait Milk's is at $5/kgMS, Westland Milk Products at $4.75-to-$5.15/kgMS, Miraka at $4.55-to-$4.80/kgMS, and Open Country Dairy at $4.60-to-$4.90/kgMS.

The futures contract was launched on May 27 as a way for dairy farmers and processors to hedge the price of milk at the farm gate amid volatility in dairy prices.

The futures price has gained 27 per cent since the contract was launched at $4.35/kgMS, tracking gains in the GDT on optimism declines in global milk production would underpin demand for New Zealand's major export commodity.

Whole milk powder, New Zealand's key product, slipped 0.2 per cent at this week's fortnightly auction, snapping four successive gains.

"Considering the contract is only a few months old now, it's a really good start," said OMF commodities dealer Karl Arns.

"It has surprised a few people how much participation there has been, and how many people are using it at this early stage."

The price "compares quite favourably with Fonterra's recently updated forecast," Arns said.

"Nobody expected it to be sitting at these levels so soon, it really has been quite a remarkable turnaround."

Some 1,746 lots have traded so far in the current 2017 milk price futures contract, each of which is for 6,000/kgMS, meaning a total of 10.5 million kg/MS has been hedged for the season so far.

NZX whole milk powder futures are signalling prices will rise at the next GDT on Oct. 4, with the futures trading at a premium to their equivalent contracts on the GDT.

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