Dairy prices ease, as China absence relaxes rivals

(Agrimoney) – Dairy prices at GlobalDairyTrade returned to declining, albeit by a small level overall, amid ideas that buyers, in the absence of large Chinese buying, remain relaxed about purchases, even at among hte cheapest levels in five years.

The GlobalDairyTrade price index dropped 0.3% at Tuesday’s auction, taking it to 771 points, the lowest figure, bar two, seen since August 2009.

The small change in the headline figure actually hid some larger changes within product categories, with cheddar values falling 9.2% to an average of $2,728 a tonne, the lowest on records going back to July 2011.

Butter prices – which have suffered a steep drop, of 40%, within a month in the US market before rebounding some 15% from a late-October low – fell 4.1% to $2,505 a tonne, the lowest since it began in February last year trading at GlobalDairyTrade, which is run by New Zealand dairy giant Fonterra.

Skim milk powder fell by 1.2% to an average of $2,457 a tonne, the lowest on records going back to March 2010.

However, the declines were offset by a 1.6% gain to $2,522 a tonne in values of whole milk powder, which accounts for the bulk of volumes sold at the auctions, which are run twice monthly.

‘No panic’

The drop, which leaves the GlobalDairyTrade index down 47% for 2014, showed that there is “no nervousness among buyers” of dairy commodities, said Dave Kurzawski, senior broker at INTL FCStone’s Chicago office.

“It looks like nobody is really worried about not getting supplies of the product they want,” he told Agrimoney.com, saying that pries appeared to be on a trend of “stable to lower”.

“There is some value buying at cheap levels. But we do not have that wall of worry which would see prices getting out of line.”

Chinese retreat

One key dynamic has been the retreat of Chinese buyers, after strong buying earlier in 2014, co-inciding with the release by Beijing of a fresh quota of low tariff dairy imports from New Zealand, quota which is issued at the start of every calendar year.

China’s long-term dairy dynamics remain strong, with market growth running at some 16% by value, according to Euromonitor, which estimates the total retail value this year at $86.3bn, rising to $95.4bn in 2015.

And annual consumption growth by volume of some 4%, is ahead of production growth rising at about 3% a year, Auckland-based Fonterra said in a presentation to investors this week.

However, with Chinese buyers running down inventories, their purchases, as a share of volumes sold on GlobalDairyTrade, will fall to 42% this year, from 51% in 2013 and 48% in 2012, Fonterra said.

Fonterra claims a 42% share of Chinese dairy imports for 2013 – with a 72% share of the whole milk powder market, and 62% for butter, but only a 12% share of cheese volumes.

Key market

The longer-term promise of Chinese dairy has been highlighted in a plethora of deals in recent weeks, in particular in the $15bn infant formula market, which Fonterra has beefed up in with an announcement in August of a tie-up with Beingmate.

France’s Danone and South Africa’s Aspen Holdings unveiled separate deals on Friday aimed at exploiting China’s need for infant nutrition as more mothers join the workforce.

Separately on Tuesday, the Irish Dairy Board, a co-operative which is Ireland’s largest dairy exporter, announced the launch in China of whole milk sold under it’s the Chinese version of its Kerrygold brand, pronounced Jin Kai Li.

The dairy industry in Ireland – sometimes called the New Zealand of the north for its relative pre-eminence in the sector, springing from a relatively warm and wet climate which encourages pasture growth – is gearing up for large expansion after the abolition of EU production quotas next year.