In May, the global dairy market experienced significant changes, with varying production levels and shifting export trends in New Zealand.
NZX Dairy

The Global Dairy Trade (GDT) index saw continuous increases across events in May and the first one in June. June’s event 357 recorded a 1.7% price index increase, following a 3.3% surge in event 356 and a 1.8% rise in event 355. Prices for key products like whole milk powder (WMP), skim milk powder (SMP), butter, and anhydrous milk fat (AMF) saw upward growth across all three events. This rally reflects the impact of lower volumes offered and sustained demand from the Middle East and South East Asia, coupled with occasional resurgences in North Asia buying.

Adding to the market dynamics, the SGX-NZX Dairy Derivatives market experienced a record trading month, with 88,834 lots trading in May, 13% above the previous record set in August 2023. Average open interest across the dairy suite reached a record high of 149,823,
and SMP futures hit a record 32,416 lots. Heightened price volatilities in milk powders drove the increase in trading volumes across the futures and options contracts. The market saw an increase in trading volumes in options, up 365% month on month. Most of this volume was in WMP put options, with strike prices ranging from $2700 – $2900, for expiry in Q3-Q4 2024. Given that the June 2024 WMP contract is currently trading at $3440, this indicates a bearish sentiment for whole milk powder prices later in 2024. As New Zealand comes to the end of the production season, seasonally low milk production is causing WMP supply to tighten. The futures curve is currently backwardated, with the front contracts trading at a premium until 2025.

New Zealand’s milk production for April showed a decline, with total milk collected at 1,463,000 tonnes, down 4.1% year-on-year (YoY). On a milksolids basis, the drop was 2.6%. Despite this, the season-to-date production is down only 0.5%, with a 0.8% increase in milksolids. Our NZX milk production predictor has estimated a 5.7% YoY drop for May. The NZX farmgate milk price forecast for the 2024-25 season was revised on 06 June up to $9.09/kgMS, reflecting recent GDT results, while the forecast for the 2023-24 season closed at $7.80/kgMS.

In other regions, milk production has not grown as initially expected. The U.S. reported a YoY decrease of 0.4% in April. Argentina and Uruguay faced significant production drops in April, with decreases of 16.2% and 6.6% YoY, respectively. Europe reported a modest 0.8%
increase in March production, while Australia saw a 2.5% YoY increase in April, continuing its recovery with a 3.0% season-to-date improvement.

New Zealand’s dairy exports in April were down, with total volumes decreasing by 10.1% YoY. WMP exports dropped by 16%, mainly due to reduced demand from China and North Africa. However, YTD exports remain up by 6.6%, driven by earlier strong performance.
Skim milk powder exports also declined by 35% YoY. In contrast, whey and whey protein concentrate exports rose significantly, up 37% and 63% YoY, respectively.

China’s dairy imports fell by 12.5% YoY in April, with significant drops in SMP (down 39%) and infant formula (down 36%), but notable increases in AMF (up 88%) and butter (up 31%). The U.S. saw a 6.7% decline in export volumes in March, while Argentina's exports rose by 11.3% YoY in April. Australia’s exports surged by 19.9% YoY in March, driven by substantial increases in butter and cheese. Total dairy export volumes out of Europe decreased 12.8% YoY in March, down 3.7% YTD.

Fonterra announced its opening Farmgate milk price forecast for the 2024/25 season, with a range of $7.25 to $8.75 per kgMS and a midpoint of $8.00/kgMS. The Co-op also narrowed its range for the 2023/24 season to $7.70-$7.90/kgMS. These cautious forecasts reflect
ongoing market volatility and uncertainty, particularly regarding Chinese demand

As the 2023/24 season ended, New Zealand’s dairy sector continues to face a mixed outlook. While production and export figures present challenges, the sector remains hopeful due to improved commodity prices and strategic adjustments by key players like Fonterra. This cautious optimism is tempered by the need for close monitoring of market dynamics in the coming months.

To learn more about the SGX-NZX Dairy Derivatives market, email

To learn more about NZX Dairy Insights, email

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