Dairy auction prices fall nearly 3%

The whole milk powder price has fallen in the latest global dairy auction overnight, reversing a 1.4% rise two weeks ago — and defying expert predictions and the futures market.

The average price across all of the products measured by the GlobalDairyTrade index fell by 2.9% to $US2190 a tonne.

Prices remain well short of the break-even range for farmers, who need about $US3000 a tonne.

Source: GlobaDairyTrade. Click to zoom.

10-year trend. Source: GlobaDairyTrade. Click to zoom.

It was the fifth decline in the six auctions held so far in 2016, as the global milk glut shows little sign of abating.

Some 20,406 tonnes of product was sold, down from 21,880 tonnes at the previous auction two weeks ago.

 “The large volume of milk that is being produced around the world, particularly in Europe, continues to put pressure on the markets,” AgriHQ dairy analyst Susan Kilsby said in a note. “For any substantial improvement in prices to occur we first need to see a reduction in milk production.”

The AgriHQ 2015-16 Farmgate Milk Price was unchanged at $4.14 per kilogram milksolids, as the fall in prices at the GDT auction was offset by a lift in prices in the NZX Dairy Futures market and a weaker New Zealand dollar. Fonterra’s latest forecast is $3.90/kgMS.

“The NZX Dairy Futures market has previously been a good barometer of market sentiment, but despite futures prices softening in the past few days this market was factoring in a lift in GDT prices,” Ms Kilsby noted.

Rennet casein dropped 7.0 percent to US$4,083 a tonne, while anhydrous milk fat fell 6.5 percent to US$3,014 a tonne. Cheddar declined 5.6 percent to US$2,441 a tonne, while butter slid 2.8 percent to US$2,733 a tonne.

Skim milk powder retreated 2.5 percent to US$1,731 a tonne, while whole milk powder slipped 0.8 percent to US$1,971 a tonne.

“It is likely that we will continue to see weakness in skim milk powder prices in the coming months,” Kilsby said. “Stocks of skim milk powder are building in Europe.”

“Earlier this week the European Commission announced a range of measures designed to support its dairy farmers,” according to Kilsby. “The support mechanisms will distort market signals and therefore European farmers are likely to continue to produce more milk than the market requires.”

Lactose rose 0.8 percent to US$624 a tonne, while butter milk powder climbed 6.4 percent to US$1,545 a tonne.

The New Zealand dollar last traded at 66.04 US cents at about 11.25am in New York, compared with 66.76 US cents at 5pm in Wellington the previous day.

There were 118 winning bidders out of 134 participating bidders at the 13-round auction. The number of qualified bidders fell to 606, down from 607 at the previous auction.

With reporting by BusinessDesk.

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