Weaker butter prices weigh on Global Dairy Trade auction

Wednesday, 5 May 2021

A fall in butter prices at the overnight auction dragged down the index.

Dairy prices eased in the overnight global auction, as a lift in the price of milk powders failed to offset a decline in butter and milk fat prices.

The global dairy trade price index slipped 0.7 per cent. The price of whole milk powder, which has the most impact on what farmers are paid, gained 0.7 per cent to an average US$4115 (NZ$5756) a tonne, while skim milk powder, the second-most important, rose 2 per cent to US$3433/t.

Butter prices slumped 12 per cent to US$5035/t, weighed down by extra volume on offer. Anhydrous milk fat dropped 4.2 per cent to US$5730/t.

“The cream group’s golden run has officially come to an end, with a major slide in butter prices managing to drag the GDT price index lower on the back of all milk powders gaining,” said NZX dairy analyst Stuart Davison.

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

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“It seems that the extra butter volume saturated demand, while buyers weren’t that keen on paying a premium for butter any longer.”

Fonterra Cooperative Group had indicated it was producing more butter to benefit from improved returns relative to other products.

Davison said the butter price fall may be due to weaker consumer demand following the slow easing of lockdowns globally. Demand for butter had risen as more people cooked at home during the Covid-19 pandemic and the price is 30 per cent higher than the same time last year.

North Asian buyers dominated the purchase of whole milk powder and skim milk powder on the auction platform, he said

Whole milk powder prices are 50 per cent higher than at the same time last year, and skim milk powder is 45 per cent higher, largely driven by China where a wealthier population and an increased focus on health and wellbeing after the Covid-19 pandemic is stoking demand for better nutrition.

In March, Fonterra raised its forecast milk price for this season to between $7.30 and $7.90 per kilogram of milk solids, with a mid-point of $7.60 per kgMS. That’s up from $7.14 per kgMS last season.

Dairy products are the country’s largest commodity export and Fonterra estimated milk payments to its 10,000 farmer suppliers for this season would contribute about $11.5 billion to the economy.