Demand improving but most dairy product prices extend drop

See also: Weak dairy prices prompt analysts to pull back Fonterra forecast payout for next season

Dairy product prices slipped in the latest GlobalDairyTrade auction, with declines in milk powder and anhydrous milk fat prices outweighing a firming of cheese prices, amid sluggish demand from China and Russia, while a weakening euro has made euro-zone dairy product prices more competitive.

The GDT average winning price fell 3.5% to $US2515, down from $US2620 at the previous auction three weeks ago. It was the lowest level since the December 2 auction of 2014. Some 27,369 tonnes of product were sold, up from 25,596 tonnes of product three weeks ago.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season decreased by 1c per kilogram milksolids to $4.50/kgMS following auction. This is in line with Fonterra's milk price forecast, which was recently revised down to that same level.

"The increase in the number of companies buying product on GDT indicates demand is beginning to improve, but this increase in demand is not yet being reflected in the prices," AgriHQ dairy analyst Susan Kilsby said in a note. "The volume of product on offer was greater than the previous auction as Fonterra is now sellling next season's product in the later dated contracts."

Butter milk powder slumped 14.0% to $US1748 a tonne, while rennet casein dropped 11.0% to $US6094 a tonne.

Skim milk powder fell 7.5% to $US2048 a tonne, while anhydrous milk fat dropped 6.3% to $US3505 a tonne.

"It's a buyers' market for skim milk powder at present with strong competition between New Zealand and European suppliers who are operating in the Asian and Middle East markets," Kilsby said.

"A better than expected end to the 2014-15 milk production season means New Zealand dairy companies still have some current season product to sell, while European milk production is heading towards its seasonal peak," she added.

Whole milk powder fell 1.8% to $US2386 a tonne. Over the past two months, whole milk powder average prices on the GDT platform have fallen by a quarter, and investors are betting on more weakness.

Butter slipped 0.8% to $US3005 a tonne.

Cheddar, however, jumped 9.1% to $US3012 a tonne.

Sweet whey powder was not offered at the latest event, while lactose was either not offered, not sold, or sold at the starting price.

The New Zealand dollar last traded 0.4% higher at 75.64USc at about 2:38pm in New York, compared with 75.37USc at 5pm in Wellington the previous day.

There were 117 winning bidders out of 144 participating bidders at the 11-round auction. The number of qualified bidders rose to 685, up from 673 at the last auction.

(BusinessDesk)