Dairy prices fall for 3rd auction in a row at Global Dairy Trade auction

Dairy prices fell for the third auction in a row at this morning's GDT auction. Photo / File

Dairy product prices declined for the third consecutive time at the Global Dairy Trade auction, though analysts noted the drop was not as large as some had anticipated.

There were "expectations of a bigger fall," Bank of New Zealand economist Doug Steel said in a note.

"Covid-19 fears there may be, but New Zealand's primary product prices remain at reasonable levels."

The GDT price index fell 1.2 per cent from the previous auction two weeks ago. The average price was US$3,112 a tonne, compared with US$3,176 a tonne two weeks ago. Some 25,576 tonnes of product was sold, down from 28,181 tonnes two weeks ago.

"The result was broadly in line with NZX Dairy Derivative Market expectations leading into the event, with a significant decrease in volumes sold into North Asia," NZX dairy analyst Robert Gibson wrote in a note.

Whole milk powder slipped 0.5 per cent to US$2,952 a tonne. Price changes across various delivery dates ranged from no change to 0.8 per cent, according to Gibson.

The auction was held as the world's central banks signalled action to combat the economic impact of the spreading coronavirus. The US Federal Reserve and the Reserve Bank of Australia cut their respective target interest rates today, while the Bank of Canada is expected to slash its key rate on Wednesday in Ottawa.

"New Zealand inflation is close to target and employment is at or above its maximum sustainable level," Steel noted. "Of course, this doesn't rule out a domestic rate cut given the coordination occurring offshore and the risks involved but the starting point of the economy will have some bearing of the Reserve Bank of New Zealand's course of action."

In the latest auction, butter milk powder dropped 4.8 per cent to US$2,718 a tonne, while cheddar retreated 4.7 per cent to US$4,285 a tonne.

Skim milk powder shed 3.2 per cent to US$2,747 a tonne. It "is the third decrease in a row and puts prices at levels similar to October 2019," Gibson noted. "There was a significant decrease in demand for near term deliveries for April, which were down 14 percent, with prices also down 2.2 per cent to 3.3 percent for all remaining delivery dates."

Anhydrous milk fat eased 1.7 per cent to US$4,302 a tonne.

Meanwhile, rennet casein rose 0.5 percent to US$9,891 a tonne, while butter gained 1 per cent to US$4,131 a tonne, and lactose climbed 5.7 per cent to US$871 a tonne.

For sweet whey powder, no product was offered or sold, or no price was published for the last event, or on both of the two previous events.

The New Zealand dollar last traded at 62.92 US cents at 8:30am in Wellington compared with 62.61 cents at the previous close in Wellington.

There were 136 winning bidders out of 184 participating at the 17-round auction. The number of registered bidders was 530, up from 528 at the previous auction.

Fonterra last month reaffirmed its farmgate milk price and earnings forecasts for the year, despite uncertainty surrounding the outbreak of the coronavirus Covid-19 in China.

The co-op said its farmgate milk price forecast range would remain at $7.00-7.60 per kg and its full-year underlying earnings guidance would stay at 15-25 cents per share.

Fonterra revised its forecast milk collections for the 2020 season down from 1,530 million kgMS to 1,515 million kgMS, due to adverse weather.

- BusinessDesk