Dairy prices hit six-year low, weighed by ample supplies

May 6th, 2015

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Category: Dairy

dairycheese-450x299(Agrimoney) – Dairy prices fell to a six-year low at GlobalDairyTrade, led again by weakness in skim milk powder values, as growing supplies further undermined the hopes earlier in the year of a tightening market.

The GlobalDairyTrade index, which is derived from trading on milk co-operative Fonterra’s dairy auction website, fell by 3.5% to its lowest since August 2009.

The fourth successive price decline at GlobalDairyTrade auction was led, once again, by skim milk powder, values of which dropped by 7.5%, taking to 28% their decline from an early March high.

The drop was attributed to increased confidence in supplies, with the market continuing to correct from highs reached earlier in the year on drought concerns in New Zealand, the top milk-exporting country.

‘Surprised we weren’t lower’

“Milk volume in New Zealand are quite a bit better than they were looking, and the demand hasn’t shifted,” said Dave Kurzawski of commodity trader INTL FCStone.

“The fundamentals didn’t change as much as people were expecting” earlier in the year.

Indeed, a decline at the latest GlobalDairyTrade auction had been broadly expected, with Tobin Gorey at Commonwealth Bank of Australia, for instance, saying earlier that “near term [dairy] supply continues to look heavy so another decline would not surprise”.

Mr Kurzawski said: “In fact, I’m a little surprised we weren’t lower,” on prices, although there was hope that a nadir for prices had now been reached.

“We could be in a bottoming situation – but that bottom could last for months,” he told Agrimoney.com.

‘Below breakeven levels’

In fact, Fonterra, the Auckland-based dairy giant which runs GlobalDairyTrade, last week revealed that it was lifting the amount of product sold at the auction by 5,100 tonnes over the May-to-July period.

The amount of product sold at the latest auction was, at 27,369 tonnes, up nearly 1,800 tonnes from the previous event.

However, while attention is now switching to the northern hemisphere and the seasonal spring highs in milk production volumes in the likes of Europe and the US, there is some expectation that weaker dairy values might take a toll on New Zealand output next season.

“After decades of industry expansion, many of New Zealand’s dairy producers are heavily indebted and the current pay price is below breakeven levels,” according to Daily Dairy Report.

“If low prices persist, cash flow issues could restrict expansion and the use of supplemental feed in the upcoming season, reducing the potential for growth in milk output.”

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