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Dairy product prices rebound from five-year low

Thursday 16th October 2014

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Dairy product prices rose in the latest GlobalDairyTrade auction, recovering from the lowest level in five years, as gains in anhydrous milk fat and sweet whey powder outweighed declines in rennet casein and butter milk powder.

The GDT average winning price rose 1.4 percent to US$2,640, up from US$2,599 two weeks ago. Some 50,816 tonnes of product was sold, down from 55,057 tonnes of product two weeks ago.

Some traders had been expecting prices to rise after falling to their lowest since 2009 in the last auction two weeks ago, given prices of other commodities including wheat, corn and sugar have gained this month and the latest auction didn't fall on a Chinese public holiday. Fonterra has said prices will find a base as global supplies come back into balance and China resumes buying.

Even so, the AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 30 cents to $4.75 per kilogram of milksolids following the October 15 GlobalDairyTrade auction. This compares to Fonterra’s current forecast for the season of $5.30/kgMS.

The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest GlobalDairyTrade prices were achieved across the entire season the milk price would be just $3.90/kgMS.

“The improvement in prices at last night’s auction result is a good start but we need to see a continuation of this upward trend in order to for farmgate milk prices to improve,” AgriHQ dairy analyst Susan Kilsby said in a note. “Despite a higher whole milk powder price the AgriHQ Seasonal Farmgate Milk Price has fallen further as the recovery in dairy commodity prices is now expected to be slower.”

In the latest GDT auction, anhydrous milk fat climbed 7.4 percent to US$3,346 a tonne, sweet whey powder advanced 4.3 percent to US$1,225 a tonne, while butter rose 3.9 percent to US2,614 a tonne.

Whole milk powder gained 3.1 percent to US$2,503 a tonne.

The NZX Dairy Futures market indicates that whole milk powder will not exceed US$3,000 per tonne tonne until April 2015, whereas a fortnight ago prices were expected to be back above at this level by the end of 2014.

“A farmgate milk price below $5/kgMS will make it extremely difficult for farms to turn a profit this season," according to Kilsby. "Farmers will cut spending wherever they can, which in turn will impact businesses that supply products and services. The lack of profitability in the dairy sector will initially be felt in our small rural towns but eventually the downturn will impact New Zealand’s whole economy.”

Last week Fonterra reduced the volume of whole milk powder which they plan to sell on GlobalDairyTrade over the next 12 months by 7 percent.

“The lower volume of product on offer is likely to provide some support to prices, but as volumes are close to their seasonal highs it will take some time for this market to fully recover,” Kilsby said.

Meanwhile, cheddar fell 1 percent to US$3,007 a tonne, while skim milk powder shed 3.6 percent to US$2,462 a tonne.

Butter milk powder declined 3.8 percent to US$2,685 a tonne, while rennet casein dropped 5.3 percent to US$7,780 a tonne.

Lactose was not offered at the event.

The New Zealand dollar traded as high as 79.94 US cents at 9:40am in New York, and recently traded at 79.69 US cents. Earlier in the day, the kiwi had traded around 78.42 US cents.

There were 132 winning bidders out of 167 participating bidders at the 14-round auction. The number of qualified bidders rose to 668, up from 657 at the last auction.


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