Dairy product prices post surprise gain, revive optimism on outlook

Dairy product prices unexpectedly rose at the Global Dairy Trade auction, stemming two straight declines and offering optimism that the market can deal with increased supply.

The GDT price index rose 1.7 percent from the previous auction two weeks ago to US$3,101. Some 22,498 tonnes of product was sold, up from 22,328 at the previous auction.

Whole milk powder gained 2.9 percent to US$2,855 a tonne.

"For the market to absorb the extra volume available and to pay a higher price for it is an outstanding result and a complete turnaround from a fortnight ago,” AgriHQ dairy analyst Susan Kilsby said in a note.

"Market fundamentals do support the higher [whole milk powder] prices but so often the dairy markets are driven by sentiment,” Kilsby noted. “There has been a lot of negative sentiment in the market recently so this result marks a real turnaround in attitude."

At the latest GDT auction, butter climbed 4.9 percent to US$4,910 a tonne, while rennet casein increased 3.6 percent to US$5,927 a tonne.

Anhydrous milk fat gained 3 percent to US$5,799 a tonne.

Meanwhile, skim milk powder sank 10.1 percent to US$1,948 a tonne.

“SMP remains a challenge to sell due to the large global stocks of this product,” Kilsby said. “All of the SMP offered last night by Arla Foods and Amul either didn't sell or didn't move off its starting price. Fonterra product fared a little better with its product generally selling but at low prices.”

“There are huge stocks of SMP in Europe and stocks are starting to grow elsewhere,” Kilsby said. “Processors are taking advantage of the high fat prices so have lifted butter production which also means that more SMP is being produced.”

Lactose declined 2.7 percent to US$913 a tonne, while cheddar fell 1 percent to US$3,406 a tonne.

No prices were available for butter milk powder.

The New Zealand dollar last traded at 70.56 US cents at 12.28pm in New York, compared with 70.55 US cents at 5pm in Wellington the previous day.

There were 113 winning bidders out of 154 participating at the 12-round auction. The number of qualified bidders rose to 533, up from 530 at the previous auction.

(BusinessDesk)