Dairy product prices hit five-year low

Dairy product prices slipped to a fresh five-year low in the latest GlobalDairyTrade auction, because of a drop in whole milk powder.

The auction follows figures showing New Zealand's terms of trade fell from a 40-year high in the third quarter, led by an 11 percent drop in prices of exported dairy products. In November, New Zealand commodity prices fell for the ninth straight month, based on the ANZ Commodity Price Index, as milk powder prices dropped to five-year lows.

The GDT average winning price slid 1.1 percent to US$2,513, the lowest level since August 2009, down from US$2,561 two weeks ago. Some 39,273 tonnes of product was sold, down from 39,613 tonnes of product two weeks ago.

"A large fall in whole milk powder prices was masked by higher prices being achieved for other dairy commodities such as butter and skim milk powder," AgriHQ dairy analyst Susan Kilsby said in a note.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 30 cents to $4.25 per kg milksolids following the GDT auction. This compares with Fonterra's current forecast for the season of $5.30 per kg milksolids which is scheduled to be reviewed next week.

The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest GDT prices were achieved across the entire season this would equate to a milk price of $3.65/kgMS, a 5 cent fall from the previous auction.

In the latest GDT auction, whole milk powder dropped 7.1 percent to US$2,229 a tonne.

"Milk production remains strong across the globe and this is not helping prices to recover," Kilsby said. "Milk production in the northern hemisphere is near its seasonal low but this is being offset by strong production from the southern hemisphere nations."

The outlook has worsened, Kilsby said. NZX Whole Milk Powder Futures contracts have slumped about 20 percent in the past fortnight, with contracts scheduled to expire in April to June 2015 dropping the most, indicating a further slowing in the price recovery.

Data released on Tuesday showed New Zealand's milk solids production climbed 5.4 percent in October from the same month in 2013.

"That is an extra 143,000 tonnes which is a lot of extra milk to sell particularly when the markets are as weak as they are at present," Kilsby said.

Rennet casein jumped 9.3 percent to US$7,255 a tonne, while anhydrous milk fat rallied 9.0 percent to US$3,817 a tonne, and butter milk powder climbed 8.8 percent to US$2,560 a tonne.

Butter gained 7.3 percent to US2,849 a tonne, skim milk powder rose 5.7 percent to US$2,423 a tonne, and cheddar added 5.2 percent to US$3,017 a tonne.

Sweet whey powder was at US$1,205.

Lactose was not offered at the event.

The New Zealand dollar traded as low as 77.85 US cents at about 9:55am in New York, and recently traded at 77.97 US cents. Earlier in the day, at 9:28am in New York, the kiwi had traded around 78.36 cents. The US dollar rallied overnight after more positive data on the US economy.

There were 128 winning bidders out of 177 participating bidders at the 11-round auction. The number of qualified bidders rose to 689, up from 676 at the last auction.

(BusinessDesk)