Whole milk powder leads fresh fall in dairy prices

December 3rd, 2014

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Category: Dairy

Milk-Trio450x299(Agrimoney) – Dairy prices fell again at GlobalDairyTrade, hitting a fresh five-year low, undermined by a tumble in values of whole milk powder – which contrasted with stronger markets for other products.

The GlobalDairyTrade index dropped 1.1% at Tuesday’s auction to its weakest since August 2009 – and taking to nigh on 50% its slump so far in 2014.

The decline reflected a 7.1% tumble in prices of whole milk powder, which accounts for the bulk of the volumes traded at the auction, and which has now plunged in value by 55% this year.

And it comes amid continued evidence of milk production in major exporting countries growing faster than demand, with output in New Zealand, the shipper, up 5.4% at 270.8m kilogrammes of milk solids in October, the peak production month, according to industry group Dcanz.

Australian output in October was 6.0% higher than a year before, Dairy Australia said.

‘Customer overstocking’

The market weakness has been blamed on the withdrawal of Chinese importers, after a stock-building spree early in the year, amid some fears over dryness in New Zealand.

Matt O’Regan, the chairman of New Zealand-based processor Westland Milk Products last week flagged “some overstocking earlier in the year” by buyers “following supply concerns due to drought, food safety and regulatory changes”.

While the inventory is “slowly being consumed… customers are generally comfortable with their inventory positions into the first quarter 2015, so we do not expect a sudden uplift in demand”, he added.

The comments came as Westland lowered by NZ$0.40 to NZ$5.00-5.40 per kilogramme of milk solids its forecast for its milk price payout to farmers for 2014-15.

‘Bottoming behaviour’

However, at broker INTL FCStone, senior broker Dave Kurzawski urged caution over expecting further price falls.

“It’s really hard to see the GlobalDairyTrade direction going as super-bearish as some people have being making the case for,” Mr Kurzawski said.

“I am not suggesting the market is going to turn around and go higher. It might even go a little bit lower.”

But in a less consistent pricing pattern of late, “the market appears to be showing bottoming behaviour”.

Milk price cuts

Some analysts see a slowdown in milk output growth ahead as price falls work their way to producers.

“Farmgate milk prices are significantly below year-ago levels and likely to result in lower supplemental feeding, early drying-off, and increased culling in early 2015,” the US-based Milk Producers Council said in a market report.

The UK’s First Milk on Tuesday became the latest to processor to unveil a price cut, reducing payouts by 1.0-1.1p per litre.

Sir Jim Paice, the First Milk chairman, said: “Unfortunately market indicators for core dairy products have declined further since the start of November.

“In order to put our milk prices in line with projected market returns, we need to reduce our milk prices further.”

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