Dairy prices weaken 3.8% at overnight global auction; remain elevated

Wednesday, 17 March 2021

Dairy prices weakened at the overnight auction following a surge higher at the previous event.

Dairy prices eased in the overnight global auction following a surge higher at the previous event, although prices remain elevated amid strong demand.

The global dairy trade price index fell 3.8 per cent. The price of whole milk powder, which has the most impact on what farmers are paid, dropped 6.2 per cent to an average US$4083 a tonne.

The pullback follows a 15 per cent jump in average prices and a 21 per cent rise in the price of whole milk powder at the previous auction two weeks ago. The GDT price index has risen rapidly since November last year, gaining 36 per cent.

“Whilst not as exciting as the previous GDT event, this auction has sent some strong signals for the industry on the whole,” said NZX senior analyst Amy Castleton. “There is little doubt now that whole milk powder prices will remain elevated for the short term with this level of demand being shown.”

* Milk price payouts forecast to rise: Fonterra

* Dairy auction prices exceed expectations to jump 4.3 per cent

Fonterra factors in fat and protein levels in milk when buying it off farmers.

She noted that whole milk powder prices remained above US$4000/t even with increased volumes. The latest auction confirms strong demand for whole milk powder, particularly from North Asia, with 98 per cent of the product on offer being sold.

Westpac senior agri economist Nathan Penny said the latest auction result didn’t change the overall dairy market picture.

“Dairy markets remain tight, with high prices a function of demand outstripping supply,” Penny said.

Prices are likely to remain around current levels over the next few months, albeit with some volatility, then moderate as New Zealand production picks up in Spring, he said.

“However, with the global supply response likely to be moderate and ongoing solid global demand, we expect global dairy prices to remain firm over the 2021/22 season as a whole,” he said.

Fonterra chief executive Miles Hurrell on Wednesday reaffirmed the cooperative’s forecast milk price for farmers this season of between $7.30 and $7.90 per kilogram of milk solids, putting it on track for its second highest milk price to date, which would contribute an estimated $11.5b to the economy.

Westpac expects Fonterra to pay $7.90 per kg this season, and $7.25 per kg next season.

The cooperative is seeing strong demand from China as Asia’s largest economy recovers from Covid-19 although it is wary of increased production from the European Union and the United States as their dairy seasons ramp up, and the impact of the pandemic on key markets.

“We saw an extraordinary rise two weeks ago, and we saw it come back a little bit last night,” Hurrell said.

“There is volatility out there. We still haven’t seen the back end of Covid and we are starting to see potential the re-emergence of more cases out of Europe so has that created a little bit of uncertainty in the international market.”

Dairy products are the country’s largest commodity export.