Dairy Auction: Dairy prices slip again

Dairy prices slipped again at this morning's GlobalDairyTrade auction, the GDT price index falling by 1.3 per cent but with only slight falls recorded for whole milk and skim milk powder.

Wholemilk powder - the most actively traded group on the GDT platform - fell in price by just 0.1 per cent from the last sale to US$2327 a tonne while skim milk powder prices eased by 0.2 per cent to US$1978 a tonne.

Mike McIntyre, head of derivatives at First NZ Capital, said the overall price decline - the seventh in a row - was disappointing given that offer volumes were at seasonal lows.

"The one consolation farmers can take is the recent weakness in the New Zealand dollar but they will be hoping that there is an increase in demand in the coming months as volumes on GDT ramp up very quickly from here," he said.

ASB Bank economists expect dairy prices to remain weak for two or three months because of higher New Zealand milk production.

The international dairy market is suffering from a supply/demand imbalance, with higher production coinciding with subdued demand, particularly from the world's biggest importer - China.

In New Zealand, milk production jumped by 9.2 per cent in April to 138.07 million kg of milksolids compared with April last year.

Last week, the Reserve Bank cited weakness in dairy prices as a reason for cutting its official cash rate by 25 basis points to 3.25 per cent.

There was a minor shift down in the New Zealand dollar after the GDT result, the currency dropping by about 25 basis points to US$69.75c.

Sam Tuck, foreign exchange strategist at ANZ Bank, said the result would weigh on the New Zealand dollar but that that individual auctions would have less impact on the Kiwi now that Fonterra has announced its 2015/16 forecasts.

Fonterra offered just 10,000 tonne of whole milk powder at the auction - the least amount to be made available this year to date. The quantity of wholemilk powder available on GDT is forecast to rise from July onwards as new season product starts to be forward sold, AgriHQ dairy analyst Susan Kilsby said.

"It will become harder for prices to recover as the volume of milk powder on offer increases as the new dairy season progresses," she said in a commentary.

Among the price movements, butter prices firmed by 3.3 per cent to US$2707 a tonne and cheddar firmed by 2.4 per cent to US$3128 a tonne. Lactose prices fell by 2.8 per cent to US$525 a tonne.

Anhydrous milk fat prices were down by 8.9 per cent to US$2814 a tonne, butter milk powder prices were up by 10 per cent to US$1975 a tonne and rennet casein was up by 4.3 per cent to US$6126 a tonne.