GlobalDairyTrade prices rally again, despite trade deal setback

(Agrimoney) – The rally in global dairy prices continued, despite news that key North American markets will remain protected from overseas imports.

Dairy prices on GlobalDairyTrade auction site, run by New Zealand milk giant Fonterra, rose for the fourth session running on Tuesday, up 9.9% from their last auction two weeks ago.

Prices are now at their highest since March.

Prices for whole milk powder rose by 13.4% from the last auction.

Supply squeeze

Overall dairy prices are up 63% from their lows at the start of August.

Milk powder prices have been gaining ground since Fonterra announced it was cutting the amount of product it was making available on the GlobalDairyTrade platform.

And concerns are growing as to whether the New Zealand industry can sustain its production given the long term weakness in prices.

New Zealand production is key to world milk prices, as the country is the single largest milk exporter.

Falling production

Last week the Bank of New Zealand expanded to 6%, from 4%, the fall in New Zealand milk production it expects this season.

And last month Fonterra revised its forecast for the drop in New Zealand milk output in 2015-16 to 5%, from 2%.

The Bank of New Zealand noted that milk production so far this season, which started in June, has been lower than expected, citing dry conditions and the disincentive to producers provided by a milk price which set 13-year lows early in the season.

And El Nino, which can cause dryness in key New Zealand pasture areas, could dent production later in the year.

Deal falls ‘far short’

Fonterra on Tuesday hit out North American protectionism in the dairy market, after the Trans Pacific Partnership talks failed to open up new markets for New Zealand milk.

Fonterra chairman John Wilson has “very disappointed that the deal falls far short” of its original ambition to eliminate all tariffs”.

But Mr Wilson said “there will be some useful gains for New Zealand’s dairy exporters in key TPP markets such as the US, Canada and Japan. Greater benefits will be seen in future years as tariffs on some products are eliminated.”

Dairy was a major sticking point in the TPP negotiations, which were resolved after five years of negotiations, early on Monday morning.

Exporters in New Zealand and Australia hoped for more access to US markets, and also the heavily regulated Canadian market.

New Zealand’s opposition leader has also cast doubt on the concessions won for the country’s dairy exporters.

‘Poor outcome’

Tobin Gorey of Commonwealth Bank of Australia called the results for dairy markets “a poor outcome” but said that expectations for large changes should not have been high, as the market has resisted past attempts at reform.

“Multilateral agreements have become progressively more difficult because the remaining protections are dominated by issues that ended up in the ‘too hard’ basket after earlier multilateral negotiations,” he said.

“And dairy is certainly one of those.”