Futures market points to dairy price gains

Dairy cows cows in the milking shed for the evening milking. Photo / File

Futures market pricing is pointing to another gain at this Wednesday's GlobalDairyTrade auction.

Whole milk powder futures were were firm, with the January contract trading at US$3120 a tonne, February at US$3165 and March at US$3175, following on from a strong showing last week.

"Looking at the market, you would have to say that whole milk powder will be up by at least 5 per cent at this week's auction," Nigel Brunel, director financial markets at OM Financial said.

The rally in whole milk powder futures is being driven and supported by news from Fonterra that milk collection for October, especially in the Waikato, is down about 14 per cent from this time last year due to wet weather.

European milk production is also softer though the US remains firm on the back of good weather and low grain prices.

Wholemilk powder prices, which have the greatest bearing on Fonterra's farmgate milkprice, traded at US$2760 a tonne at the last GlboalDairyTrade sale on October 19, up 2.9 per cent from the previous sale.

Fonterra last week said that it was assessing the impact of a big drop in milk production this month on its contract book and future production plans.

Given that milk collections are now at the peak of the season, they are not expected to recover and will flow into the balance of the season, it said.

Fonterra's farmgate milk price forecast for 2016/17 currently stands at $5.25 a kg of milksolids.