Dairy prices enjoy an unexpected rally, but do little to dispell gloom

(Agrimoney) – Milk prices rallied, a little, at the GlobalDairyTrade auction, but did little to change the downbeat mood in the dairy market.

Milk prices at the benchmark auction, which is run by top-exporter Fonterra, rose by 2.1% from the last event two weeks ago.

Prices for whole milk powder, the most-traded product, rose by 1.5%, where analysts had been expected a slight drop in prices, based on the New Zealand futures market.

Steady prices

But despite the slight uptick, prices are still barely changed over the last two months.

Prices are down 18% from this time last year, and well under half their peak three years ago.

“I don’t see the movement is ground breaking,” said Dave Kurzawski, senior broker at FC Stone.

“This is a market that is still chopping sideways.”

Long term pressure

Dairy prices have been under long term pressure, after Chinese buying eased off due to the heavy accumulation of inventories.

With Russia also slowing down purchasing due to political sanctions, markets have struggled to absorb heavy production in the US, the EU, and New Zealand.

Last month Fonterra said that production in New Zealand, the world’s top exporter, was declining slower than expected, despite the low domestic milk price.

Fonterra saw 2015-16 milk collections falling by 4% year on year, compared to the 6% decline earlier forecast.

Cheddar bucks trend

There were some big gains at the auction. Cheddar prices jumped by 10.5%, to $2,778 a tonne.

“This cheddar move was the bright spot,” said Mr Kurzawski.

Prices for lactose were up by 6.2%.

But butter prices fell by 2.0%, hitting their lowest levels since November last year, and butter milk powder prices hit their lowest level for at least 5 years, down 8.2% from the previous event.