Dairy rally slows as whole milk powder prices retreat

(Agrimoney) – The rally in GlobalDairyTrade prices slowed as whole milk powder values, which crossed the psychologically important $3,000-a-tonne mark at the last event for the first time in seven months, baulked at further gains.

The GlobalDairyTrade index rose at Tuesday’s event for a sixth successive auction, extending to 28% its recovery so far in 2015.

However, the pace of increase at the latest auction slowed to 1.1%, as price rises in the likes of butter and cheddar were offset in part by a small decline in values of whole milk powder, which accounts for the vast majority of volumes traded.

The average price of whole milk powder sold, having jumped 13.7% at the previous event, eased on Tuesday by 1.0% to $3,241 a tonne.

‘Appropriate price’

“A price of about $3,000 a tonne for whole milk powder seems to be an appropriate price,” said Dave Kurzawski, senior broker at INTL FCStone’s Chicago-based dairy division.

“It is difficult to see it going away from that level for now,” he told Agrimoney.com.

“There is some buying interest out there, but there is nothing to suggest things are going gangbusters, or that the market has become fundamentally more aggressive.”

The decline in whole milk powder prices allowed skim milk powder to reduce to $306.08 a tonne discount to its peer, from a level of $528.82 a tonne last time which was the biggest in 15 months.

‘Cautiously optimistic’

Mr Kurzawski also flagged a particular market interest in quality product, particularly evident in comparison between GlobalDairyTrade prices and Chicago dairy futures, a dynamic “you would not expect to see in a true bull market.

“A truly bullish market does not distinguish between quality – everything goes up.”

However, there is some broader optimism around in dairy markets than at the start of the year, with for instance Sir Jim Paice, chairman at UK milk processor First Milk, on Tuesday terming GlobalDairyTrade results “encouraging”.

“The recent movement of market indicators means that we are cautiously optimistic that the trend for future dairy prices is, at long last, a more positive one,” Sir Jim added.

Production slowdown

Some analysts have pointed to an increase by Dutch-based Friesland Campina last month to its forecast milk price, by E1.25 per 100 kilogrammes of milk, as a potential watershed.

Dutch-based farmers had seen particularly strong milk price falls, of 30%, over 2014, compared with 23% in Germany, 19% in the UK and 11% in France – a reflection of the Netherlands’ greater presence in world markets.

Meanwhile, output growth has slowed in New Zealand and the European Union, where it slowed to 1.3% year on year in December, including a 16.8% drop in output in Ireland, where producers face penalties for overproduction.