Dairy prices collapse to 13 year low

(Agrimoney) – Global dairy prices have plunged to a 13 year low, with whole milk powder suffering particularly sharp losses.

Prices on Wednesday’s GlobalDairyTrade auction, which is run by New Zealand milk giant Fonterra, fell 10.7% from the last trading event two weeks ago.

Prices broke a previous 2009 low, and are now at their lowest level since 2002.

Whole milk powder, which is used in the all-important infant food market, was down 13.1%, with sharp falls in all traded products except lactose.

Chinese retreat

Global dairy prices have been languishing since Chinese buying dried up last year, leaving a market with thick supply and low demand.

China is the world’s largest dairy importer, and is believed to have a substantial backlog of milk powder to work through.

John Lancaster of FCStone told Agrimoney.com that prices in the recent auction might also have felt some pressure from the stock market crash in China.

“The magnitude of the fall doesn’t bode well for a recovery in prices”, he said.

European dryness

The global dairy market has seen pressure from European production.

The EU recently abandoned a milk quota system, and farmers

A recent hot spell across Europe, particularly France, has threatened to cut the availability of forage.

But Mr Lancaster said “we have large amounts of excess milk across Europe” and noted that European milk production was already set to decline seasonally.

“It would have to be a long term event to have a larger impact on supply” he said.

Asked if there was any factor that could lift prices, Mr Lancaster said “it’s difficult to see it getting a substantial increase in the short term until the excess supplies have been eaten though”.

Seasonal supply

Mr Lancaster noted “we’re edging toward the start of the New Zealand season” meaning supply is poised to increase from the world’s biggest producer.

Writing before the auction today, Tobin Gorey of the Commonwealth Bank of Australia warned that “the sharp falls in whole milk powder futures prices point to another sharp fall (10% plus) in powder auction prices”.

Mr Gorey suggested that a fall of over 10% percent was likely “simply because the seasonality is starting to work in the direction of lower prices”.