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GDT dairy volumes sink to 2-year low as drought hits Fonterra farmers

Wednesday 20th March 2013

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The volume of dairy products offered in the latest GlobalDairyTrade auction fell to the lowest level in almost two years as drought in the North Island curbed milk production.

Fonterra Cooperative Group indicated to the market in late January that the volume of product being placed on the GDT was likely to decline over the coming months as it neared the end of the season, said Gary Romano, managing director NZ Milk Products.

"The drought has impacted this further," Romano told BusinessDesk.

Total milk production for the season could drop for the first time in five years to be 2 percent lower than last year's total, said Westpac agri-economist Nathan Perry.

"As recently as last month we were still expecting total production to be slightly up on last year, but since then the drought has pushed milk production off a cliff," Perry said. "It all depends when the rains come."

Only 15,994 tonnes of dairy products were sold at the latest GDT auction, from a maximum available supply of 16,320 tonnes. That's the lowest volume offered and sold since the May 17, 2011 auction, according to GDT data.

Sales volumes have steadily fallen for three months, taking a nosedive in March as warm weather turned to drought across the North Island, drying up dairy production.

The volume in the latest sale is down from 21,922 tonnes sold on March 5 and 33,467 tonnes on Feb. 19. In the Dec. 4, 2012, auction 52,596 tonnes were sold.

BNZ economist Doug Steel says the low volume of production due to the drought is creating a sharp tightening in supply, leading to a big squeeze and higher prices.

"Prices going up are going to the dampen demand," Steel told BusinessDesk. "People are going to be consuming less milk but that's because there is going to be less to consume," Steel says.

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