Global Dairy Auction: Dairy prices continue decline

International dairy prices fell for the third time in a row at this morning's GlobalDairyTrade auction, the GDT price index falling by 3.6 per cent since the last sale, driven mostly by weakness in skim milk powder.

Among the major products, wholemilk powder prices dropped by 4.3 per cent to US$2446 a tonne and skim milk powder dropped by 7.8 per cent to US$2253 a tonne.

Wholemilk prices - which are central to Fonterra's farmgate milk price forecasts - remain higher than the $2270 a tonne achieved at the last sale for 2014 but are 38.7 per cent down from this time last year.

"While New Zealand skim milk powder continues to trade at a premium to skim milk powder from other origins, this evening's drop has begun to close that gap," Mike McIntyre, head of derivatives at First NZ Capital, said.

At the last sale early this month, dairy prices fell by 10.8 per cent, bringing to an end the so-called "drought premium" built in to prices over February.

Futures market pricing in the leadup to the latest auction suggested prices would once again fall.

See recent movements in the GDT auctions here:

ANZ economists said the next few auctions were shaping up as being critical in determining where the opening milk price and advance will be pitched for 2015/16. As it stands, there is downward pressure on Fonterra's $4.70 per kg of milksolids forecast for the current season, which ends on May 31.

AgriHQ's theoretical farmgate milk price for the 2014-15 season fell by 3c per kg milksolids to $4.51 per kg milksolids following the latest auction.

Susan Kilsby, dairy analyst at AgriHQ, said dairy commodity markets remained weak across the globe.

"Growth in global milk supply is beginning to slow as farmers respond to lower milk prices but it will still take some time before markets are back in equilibrium," Kilsby said in a market commentary.

Among the other products put up for sale at the auction, anhydrous milk fat prices rose by 2.3 per cent, butter prices dropped by 6.6 per cent and butter milk powder prices rose by 2.1 per cent.

Cheddar prices rose by 2.7 per cent and rennet casein prices fell by 0.6 per cent.

Read more information about today's dairy auction here