Global dairy prices fall 3.4% at auction as butter market softens

A cow in front of Fonterra Kauri plant
A cow in front of Fonterra Kauri plant

Charlotte Greenfield

Global dairy prices sank for the second time in a row at an auction held early on Wednesday due to strong supply as prices eased off a long rally earlier in the year.

The GDT Price Index dipped 3.4pc, with an average selling price of $3,423 per tonne. The index fell 1.2% at the previous sale, according to GDT Events.

Prices for whole milk powder, the most widely traded item fell 1.5%, while skim milk powder fell 4%.

“Softer prices likely reflecting a lift in offer volumes, which were up on the previous event,” said Robert Gibson, analyst at NZX. “Markets may also be anticipating adequate spring milk supplies, which at this point are looking positive.”

Mark Smith of New Zealand ban ASB said butter prices checked recent gains.

"Having surged through the first half of 2019, butter prices fell 10.3pc. Still, prices remain around 23pc higher than end-2018 levels.

"This may indicate an easing in global milk fat (butter) markets.  The sudden slowdown in NZ production given the hot and dry summer weather had previously put the squeeze on milk fat markets.  Last night’s result suggests some pullback," he said.

He added that Whole Milk Powder (WMP) prices are treading water.

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"WMP prices fell 1.5pc at the auction, shooting through the middle of futures pricing (-1pc) and our own expectations (-2pc). 

"This result is neither here nor there for our Milk Price forecasts, given the low volumes on offer. How prices fare during the New Zealand spring flush will be the next key test," he said.

A total of 19,874 tonnes was sold at the latest auction, an increase of 28.1% from the previous one, the auction platform said on its website.

Prices had been rising throughout most of 2019 due to weak supply from New Zealand, combined with strong demand, particularly from Asia.

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

However, the New Zealand dollar was largely unchanged at $0.6607 on Wednesday morning.

GDT Events is owned by New Zealand’s Fonterra Co-operative Group Ltd, but operates independently from the dairy giant.

The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls nearly a third of the world dairy trade.

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