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Wednesday 14 November 2018

Global dairy prices fall, dragged down by whole milk powder

  • Global dairy prices fall 2pc
  • Whole milk powder drops to two-year low
  • Further falls likely on strong NZ supply -analyst
A cow in front of Fonterra Kauri plant
A cow in front of Fonterra Kauri plant

Charlotte Greenfield

Global dairy prices dropped for the sixth time in a row at a fortnightly auction early on Wednesday as prices for a key product, whole milk powder, sank to a two-year low.

The GDT Price Index dipped 2pc, with an average selling price of $2,851 a tonne. The index had fallen 0.3pc at the previous sale.

Prices for whole milk powder (WMP), the most heavily traded item, fell 2.9pc to its lowest since August 2016 and are expected to fall further on strong supply from New Zealand, the world’s largest dairy exporter.

“The expectations of continued milk supply growth from New Zealand will put ongoing pressure on WMP prices,” AgriHQ dairy analyst Amy Castleton said in a research note.

Butter prices also fell 1.7pc, though skim milk powder eked out a 1.2pc gain.

Rural Economist with New Zealand bank ASB said strong New Zealand milk production continues to put a damper on dairy prices. 

"Plus there may be more price weakness to come. 

"Anecdotally, New Zealand production has gone up another gear over October, the peak month for New Zealand production (October production data will be published mid-November).  If these anecdotes prove correct, then the extra milk will put further downward pressure on dairy prices.

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"That said, there is an increasing chance of an el Niño weather pattern this summer and the associated dry could put a halt on production later in the season.  But that’s a story for the summer months.  For now, the momentum is on production’s side and we expect some strong production numbers over the next month or two," he said.

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 the currency was largely unaffected, trading just below one-month highs at $0.6665.

GDT Events, which runs the auction, is owned by New Zealand’s Fonterra Co-operative Group 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 world dairy trade.

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