Dairy product prices steady, whole milk powder drops

Dairy product prices were steady at the Global Dairy Trade auction, as a drop in whole milk powder offset gains in cheddar and butter amid concern about increasing supply.

The GDT price index was unchanged in percentage terms at the previous auction two weeks ago, coming in at US$2,339, compared with US$ 2,329 at the previous auction. Some 23,089 tonnes of product was sold, down from 24,046 at the previous auction two weeks ago.

Whole milk powder dropped 4.5 percent per cent to US$2,118 a tonne.

"The GDT result indicates the market is still weak which is a concern as offer volumes are forecast to lift in the current months as more new season product is offered," AgriHQ dairy analyst Susan Kilsby said in a note. "In the current environment it is difficult to see prices move substantially higher before the end of the year."

The AgriHQ Snapshot milk price dropped 31 cents to $3.91 on the weak whole milk powder prices and the stronger New Zealand dollar, according to Kilsby. The snapshot milk price indicates what the farmgate milk price would be if all of the season's product was sold at June 15 GlobalDairyTrade prices and at the current exchange rate.

"Businesses participating at the National Fieldays currently being held in Hamilton will be disappointed with last night's results which will have done little to boost industry confidence," Kilsby said. "Dairy farmers will be using Fieldays as an opportunity to hunt down a bargain but spending is expected to be limited as farmers keep a firm lid on costs."

Last night's auction result underscores our view that there is unlikely to be a quick turn around in dairy prices any time soon.

Westpac senior economist Anne Boniface

Still, the AgriHQ 2016-17 milk price has lifted to $4.75 on the back of stronger prices for dairy commodities futures.

Westpac senior economist Anne Boniface said the underlying detail of the auction was softer, with a second consecutive fall in whole milk powder prices.

Wholemilk powder prices are the biggest contributor to Fonterra's farm gate milk price, which is forecast to be $4.25/kg for 2016/7.

"Last night's auction result underscores our view that there is unlikely to be a quick turn around in dairy prices any time soon," Boniface said in a commentary. "Instead we expect prices to bump along near current levels for much of this year before gradually improving in 2017 as growth in global milk supply slows in response to low prices," she said.

Westpac continues to forecast a $4.60/kg payout this season.

At the GDT auction, rennet casein slipped 0.4 percent to US$5,116 a tonne, while butter milk powder dropped 6.6 percent to US$1,695 a tonne.

Meanwhile, lactose eked out a 0.6 percent gain to US$754 a tonne, while skim milk powder rose 1.5 percent to US$1,901 a tonne.

Anhydrous milk fat climbed 4.4 percent to US$3,619 a tonne, butter gained 5.3 percent to US$2,910 a tonne, while cheddar rallied 6.9 percent to US$2,882 a tonne.

The New Zealand dollar last traded at 70.64 US cents at about 2.18pm in New York, compared with 69.93 US cents at 5pm in Wellington the previous day.

There were 114 winning bidders out of 168 participating bidders at the 13-round auction. The number of qualified bidders was 601 at this auction.

with Jamie Gray