World dairy prices trimmed at GlobalDairyTrade auction

In November, Fonterra lifted its forecast milk price payout by 75c a kilogram of milk solids to $6.
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In November, Fonterra lifted its forecast milk price payout by 75c a kilogram of milk solids to $6.

As the futures market predicted earlier this week, world dairy prices have flat lined following the overnight global dairy auction. 

Nevertheless, after a year when prices for whole milk powder (WMP) soared from US$1952 in January to US$3568 last night, farmers will be able to pop the champagne corks this Christmas - or at the least cheaper bubbly. 

Federated Farmers dairy spokesman Andrew Hoggard said he had a bottle stored away which he would pull out on Christmas morning. 

The drop followed consecutive rises.
GLOBALDAIRYTRADE

The drop followed consecutive rises.

However he cautioned against farmers becoming too optimistic, reminding them of the boom-bust nature of the dairy industry. 

READ MORE: Dairy price rises a boon to indebted farmers

"I just worry about short memory spans. I think that we haven't seen a huge shift in demand, but a shortage of supply," Hoggard said.

In recent months in particular dairy prices have been on the rise, helping pull farmers out of debt. Not all farmers are heavily indebted - perhaps 20 per cent are in that situation. 

The index dropped back 0.5 per cent at the overnight auction to US$3656 per metric tonne, while WMP fell 0.8 per cent.

Dairy futures broker at OMF, Karl Arns, said prices were generally in line with what was expected.

"The market's had a fantastic run. Weather conditions have been better than earlier in spring so there are fewer fears of a drop in supply,"  Arns said.

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WMP prices have been forecast to reach US$4000/MT next year, amid a worldwide production decline.

In November, Fonterra lifted its forecast milk price payout by 75c a kilogram of milk solids to $6. Arns said it could go as high as $6.50 by the end of the season, while Westpac's Anne Boniface is picking $6.20.

​She said that after strengthening over the last couple of months, buying interest out of China appeared to be more subdued. In contrast, there was a lift in interest from African buyers and those in South-East Asia.

"We expect to see further moderation in prices in the New Year. The pace of decline in global milk production is likely to slow in response to the higher prices on offer.  And locally, domestic conditions have improved noticeably after a very wet spring in some regions," Boniface said.

Fonterra increased the volume of WMP by 6 per cent to12,120 tonnes in order to meet buyer demand. However at the auction last night there was not quite enough demand to soak up the additional product offered.

AgriHQ analyst Amy Van Ossenbruggen said there was little demand for product with a guaranteed age at time of delivery "which is not surprising given virtually all of the product on offer will be very fresh anyhow as there is not a lot of product in stock".

The lift in WMP volumes was due to Fonterra changing its product mix more in favour of WMP which has been generating higher returns than other dairy products.

New Zealand farmers produced 5.3 per cent less milk in November.

Skim milk powder traded at an average price of US$2621 per tonne.  Prices for anhydrous milkfat eased while butter prices lifted. The price of lactose fell back to an average price of US$857 a tonne for the product offered by European dairy company Arla.

The cheddar price Index was up 1.9 per cent with strong lifts in the later dated contracts offsetting weakness in the nearby contracts.

This slightly negative GDT result will have minimal impact on the farmgate milk price. The result is certainly still strong enough to support the $6/kgMS price currently forecast by Fonterra. The AgriHQ milk price for the 2016-17 season will be updated tomorrow once the market has had a chance to factor in this GDT result.

There were 168 participating bidders, with a total of 22,321 metric tonnes of product sold.

 

 - Stuff

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