Global dairy prices fall to eight-month low as supply ramps up

  • Dairy prices fall 3.4pc at fortnightly auction
  • Prices drop for fourth time in a row
  • Could lead to lower farmgate milk payment - analysts

Charlotte Greenfield

Global dairy prices fell for the fourth auction in a row and hit an eight-month low on Wednesday, which could hit farmgate milk prices.

The GDT Price Index dipped 3.4pc, with an average selling price of $2,970 per tonne, in the fortnightly auction held in the early hours of the morning.

 Prices had risen in the second quarter on strong global demand and as production eased, but have since had a bumpy ride as supply has picked up.

"Buyers are unlikely to feel much urgency to buy product right now with the prospect of more milk being available from NZ," said Amy Castleton, Feilding-based analyst at AgriHQ.

New Zealand dairy giant Fonterra ,had said on Tuesday that its domestic milk output rose 3pc in October from the year before as wet weather subsided towards the end of the month.            

Prices for whole milk powder, the most widely traded product, dropped 2.7pc in the auction, in contrast with derivative market expectations of a rise. Skim milk powder fell 6.5pc.

The sustained drop in prices could lead to Fonterra slashing its milk payout to farmers by the end of the year, according to analysts.

The world's largest dairy exporter currently pays NZ$6.75 per kilogram of milk solids to New Zealand farmers.

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"With the weak run of auction results and an improved production outlook, we revise down our milk price forecast," said Nathan Penny, rural economist at ASB Bank, predicting a payout of NZ$6.50. 

 The auction results can affect the New Zealand dollar as the dairy sector generates more than 7pc of the nation's gross domestic product.

However, investors were unfazed by the result as the Kiwi rallied alongside its Australian counterpart on comments by the Australian central bank governor on Thursday.

A total of 35,042 tonnes was sold at the auction, falling 0.1pc from the previous one, the auction platform said on its website.

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