Global dairy prices unchanged after four consecutive falls

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

Charlotte Greenfield and Ciaran Moran

Global dairy prices were flat at a fortnightly auction held on Wednesday after four consecutive falls.

The GDT Price Index was unchanged, with an average selling price of $3,136 per tonne, having fallen 1.7pc at the previous sale, according to GDT Events.

The amount of product sold, however, jumped 33.9pc compared with the previous auction to a total of 34,076 tonnes.

Nevertheless buyers from North Asia, including heavyweight China, held back.

“There were fewer buyers from North Asia at this event than at the (previous) event, but the presence of buyers from South East Asia and Oceania, and from South America was strong,” said Amy Castleton, dairy analyst at Agri HQ.

ASB bank's Rural economist Nathan Penny said dairy prices have now shifted lower. 

"Over the past 5 auctions overall dairy prices have fallen 9pc, with whole milk powder prices down by a similar 8pc.  Notably, once strong butter prices have fallen hard, down around 17pc over this period.

"Initially, with global demand still firm, the fall looked like it could prove temporary. But this no longer appears the case," he said,

Penny explained that the catalyst for change has been the escalation in US-China trade tensions, but the mechanism through which dairy prices have been impacted has been currencies. 

"In particular, the Chinese yuan has fallen against not just the USD, but also the NZD. 

"The falling yuan has stinted Chinese buying power and lowered demand from our number one dairy market.  Moreover, as the US-China trade tensions drag on, the more likely the yuan is to stay at this lower level, with Chinese dairy demand likely to remain lower too.

"It follows that lower demand equals lower prices," he said.

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At the auction, Whole milk powder, the most widely traded product, rose just 0.1pc compared with derivatives markets expectations of a 0.8 percent gain.

Butter fell 3.2pc, but cheddar and anhydrous milk fat eked out 1.3pc and 1.2pc gains respectively.

Prices have been falling in recent months as production in the world’s biggest dairy exporter, New Zealand, started to pick up after weather-related woes earlier in the year, suggesting stronger overall global supply.

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

The kiwi currency dropped from around $0.6750 to $0.6734 in the wake of the auction.

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

Reuters