ANZ Morning Brief: Off to the races and I’ll put $10 on that black and white filly

OFF TO THE RACES AND I’LL PUT $10 ON THAT BLACK AND WHITE FILLY: Overnight the GlobalDairyTrade registered a very strong rise with the TWI up 3.1 percent. Despite the lingering headlines related to consumer and offshore regulator jitters about the discovery of minute traces of DCD in some milk products last year, the strength of the auction results in February do not seem to have even registered it as an issue. A lot of the reporting has been related to infant formula demand from the Chinese, which we always knew would be the most sensitive consumer group, but in general recent reporting seems to indicate things have returned to normality here also. Last night the detail of the auction was even stronger than the headline result with whole milk powder (WMP) prices up across all contract periods and 5.8 percent in total. WMP is approximately 60 percent of the basket used to determine farm-gate milk prices. WMP prices have now increased by 16 percent since the start of this year. Given New Zealand is the largest global exporter of WMP we suspect it is the dry conditions in the North Island (approx. 60% of NZ’s total production) that is driving the market higher. Buyers seem to be getting in early as they realise there will not be the same boost to end of season production we had 12 months ago and subsequent clearance sale. Interestingly, soybean prices jumped 2.9 percent overnight on stronger imports from China . Soybeans are the primary ingredient in many dairy product substitutes e.g. soy milk, margarine, soy ice cream etc. Given Chinese imports of dairy products has also been very strong it suggests the Chinese demand story for high quality protein is equally alive and well.  However, while it might seem like the dairy industry could be off to the races the high NZD remains a big hurdle. With the NZDUSD hovering around the 0.85 mark last night’s auction only translates into a milk price in the high five’s. This is not quite the big winner many dairy farmers have had in some of the more recent seasons, but it’s still good to see auction prices rising.

NZD/USD: Milk powder & Wheeler…

Attempts to sell NZD on a “ China destroys NZ milk powder” headline paradoxically led to NZD strength overnight as those that sold into real demand were stopped out. Last nights GlobalDairyTrade whole milk powder price (+5.8%) proves there is no concern over NZ milk exports. A speech by Governor Wheeler this afternoon has the potential to impact all kiwi crosses. Expected range: 0.8410 – 0.8500

 

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