Dairy Auction: Prices fall again

International dairy prices fell for the fourth time in a row at this morning's GlobalDairyTrade auction, the GDT price index losing 3.5 per cent since the last auction in mid April.

The price of whole milk powder - the key determinant for Fonterra's farmgate milk price - fell by 1.8 per cent to US$2386 a tonne.

Another key product, skim milk powder, fared worse, the average price dropping by 7.5 per cent to US$2048 a tonne.

The price of all other products also fell, with the exception of cheddar, which gained 9.1 per cent to US$3012 a tonne.

In the currency markets, the New Zealand dollar rallied to US75.40c from US75.10c just before the auction, indicating the market had expected a worse result.

Fonterra last week said oversupply and extreme volatility on world dairy markets prompted it to lower its farmgate milk price forecast for 2014/15 to $4.50 a kg of milk solids from $4.70.

At the same time Fonterra reversed earlier forecasts of a 2 per cent milk production decrease for the current season, which ends on May 31, to a 1.45 per cent increase.

An increase in GDT offerings for both skim milk powder and anhydrous milk fat, as a result of the production upgrade from Fonterra, saw both products perform poorly.

Some skim milk powder offerings either did not receive a bid or did not trade higher than the opening price offered, Mike McIntyre, head of derivatives at First NZ Capital said.

"The shining beacon for last night was the performance of cheese, which was the only product to increase in price," he said.

"The food service industry in the US has remained robust and it is likely that Fonterra has picked up export orders as a result of our product remaining at a discount to product priced out of the States," McIntyre said.

The auction took just over two hours to complete but the number of successful buyers increased by nine to 117.

The volume of product traded on GDT was 7 per cent greater than the previous auction, with 27,639 tonnes of product changing hands.

AgriHQ dairy analyst Susan Kilsby said the increase in the number of companies buying product on GDT indicated demand was beginning to improve, but that the increase was not yet being reflected in prices.

"It's a buyer's market for skim milk powder at present with strong competition between New Zealand and European suppliers who are operating in the Asian and Middle East markets," Kilsby said.

"A better than expected end to the 2014-15 milk production season means New Zealand dairy companies still have some current season product to sell, while European milk production is heading towards its seasonal peak," she said.

Fonterra's forecast for the 2015/16 season is due near the end of the month but private forecasters have predicted a farmgate milk price of around $5.70 a kg.

At the last sale on April 16, product prices softened but the rate of decline showed signs of slowing, the GDT price index falling by 3.6 per cent.