The latest glimmer of hope for dairy farmers was extinguished as prices fell at GlobalDairyTrade to a seven-month low – defying a signal from futures markets for an increase in values.
Prices at the benchmark auction, run by Fonterra, the world’s top dairy exporter, fell at Tuesday’s event by 2.9%, as measured by the GlobalDairyTrade index.
The decline, which took the index to its lowest since August, defied hopes that a small rise in values at the previous auction, on March 1, and strength since in New Zealand futures heralded a sustained recovery in prices from levels which are among their lowest on data going back a decade.
Earlier on Tuesday, Tobin Gorey at Commonwealth Bank of Australia said that a “recent improvement” in whole milk powder futures on New Zealand’s NZX exchange “is pointing to another rise in GDT prices.
“We are expecting whole milk powder prices to rise in the vicinity of 7%, though the overall [GlobalDairyTrade] index will probably rise by a smaller amount.”
‘Chopping around the bottom’
At INTL FCStone’s Chicago offices, Dave Kurzawski, senior broker, said: “There were solid reasons for expecting prices to higher.
“We had the rise at the last auction, NZX futures are setting a bit higher than at the last, and there were lower volumes offered at today’s auction too.”
The quantity of product sold at the auction, at 20,406 tonnes, was the lowest in a year.
“But there was still negative sentiment in the face of that. It is a reminder that things are still pretty weak,” Mr Kurzawski told Agrimoney.com.
“If you wanted to call it ‘chopping around the bottom’, you could call it that,” he added.
‘Formidable production’
The dairy market has suffered a series of false dawns, with a series of commentators forecasting a revival on the horizon only to push back expectations for a recovery.
The US-based Milk Producers Council said at the weekend that “strength in the milk powder market has been fleeting – recovery is always six months away”.
Besides continued softness in import demand from key buyer China, where supplies have been boosted by increased domestic production as well as the hangover from a 2013-14 stockpiling drive, resilient milk output has also been cited as a major cause for continued price weakness.
European Union output has been boosted by the removal a year ago of output quotas, with production in the April-to-December period up 3.3% year on year.
However, the Milk Producers Council forecast strong US volumes ahead too, saying that “milk powder production will surely be formidable during what promises to be a very strong spring flush”, a reference to seasonal strength in milk output around April-May.
WMP resilience
The decline in prices at Tuesday’s event was led by rennet casein, values of which dropped 7.0% – albeit after soaring 14.9% at the previous auction.
Anhydrous milk fat prices dropped by 6.5% this time to take their decline for 2016 to 19.0% – well ahead of the average 14.0% decline for milk products overall.
In fact, as CBA forecast, whole milk powder prices proved relatively firm, but still fell by 0.8% on Tuesday.
Performance was weakest in nearby contracts, with prices of powder for June delivery dropping by 1.7%, while the September lot appreciated by 3.5%.
The premium of whole milk powder compared with skim milk powder rose, on an average contract basis, by $68 a tonne to $240 a tonne, but still remained behind the trailing 12-month average of $303 a tonne.
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