Dairy prices hit lowest since 2009 as strong output weighs

(Agrimoney) – Milk prices plumbed new five-year lows at GlobalDairyTrade, as the market remains dominated by very thick global inventories and ample supply.

Prices at GlobalDairyTrade, which is run by New Zealand milk giant Fonterra, fell 4.3% on the last trading event, two weeks ago, dropping for a sixth successive auction.

The decline took the GDT index to its lowest level since July 2009, with particularly sharp falls in prices for butter, down 10.0%, and anhydrous milk fat, down 7.4%.

However, all products traded saw prices fall from the previous auction.

‘Demand still not enough’

Dave Kurzawski, a trader at broker INTL FCStone in Chicago, said that the decline reflected continued ideas that production has not been curtailed to match better demand.

“World demand has still not been enough to overtake the available supply or to cause any worry internationally,” Mr Kurzawski told Agrimoney.com.

And he saw no immediate end to the bearish fundamentals.

“Strap in for a situation where prices are going to be travelling sideways for some time unless something comes out of the woodwork,” he said.

Extra volumes

Weak demand in China, a key importer, where US officials said last month that milk powder stocks may have started the year even larger than had been thought, is one key dynamic in the market mix.

Latest trade data show Chinese imports of skim milk powder in April down 13% year on year, with buy-ins of whole milk powder tumbling by 65%.

Meanwhile production is proving resilient, with data from Fonterra last week showing strong growth in New Zealand production, albeit amid a seasonally less important period.

Fonterra also last week raised the amount of product it intended to sell through GlobalDairy trade over the next year “by 4,895 tonnes, with 2,675 metric tonnes occurring over the next three months, and the remainder spread over the following eight months as our plans for next supply season develop”.

‘Milk is abundant’

Meanwhile in the US “the temperature is climbing in the West, and milk production is falling there, but in the Midwest and Northeast output continues to rise,” said the US-based Milk Producers Council.

“Milk is abundant.”

In Europe, official data showed Irish milk output soaring 14.5% year on year in April, although this figure is thought to be down in part to producers withholding some deliveries from March to avoid being penalised under levy rules, which lapsed from April 1.

El Nino effect?

Mr Kurzawski held out as a one possible hopes for price support the onset of El Nino, which can cause dry weather in Oceania.

However, he noted that the effects of the weather pattern were more notable in Australia than in New Zealand, which is the world’s biggest milk exporting country, and where output curtailments might have more impact in supporting values.