Analysis: What does latest Global Dairy Trade mean for milk prices?

Dairy product prices fell again at the most recent Fonterra Global Dairy Trade (GDT) auction.

The event represents the fifth negative auction for prices in a row and the GDT index now 37% lower than this time 12 months ago.

Average prices paid at the dairy auction fell 2.2% on the last event held two weeks previously which itself was down over 3.5%.

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Another GDT fall, although not as large

According to DairyCo while the latest auction was another blow to price indications, the rate of price decline continues to fall and that could be seen to be an indication that prices are near the bottom of the market.

It says price stabilisation is often the first sign of price recovery, although the process will take time.

This means the next couple of auctions could be crucial in providing an indication of whether we have actually reached the bottom of the market as well as potential future movements of wholesale prices, according to DairyCo.

It says wholesale prices are currently expected to be driven by supply and, with New Zealand nearly at the country’s trough period, production during the EU’s spring flush could be important in determining where the dairy martket goes from here.

Kiwi reaction – Dairy doldrums

Dairy prices are in the doldrums, according to Kiwi bank ASB’s analysis of the latets Global Dairy Trade and it says they are low and going nowhere fast.

It says prices are now at their lowest level since 2009 and expects prices to remain low over the next two to three months, before finally beginning their lift.

ASB says New Zealand production has got a second wind, ending the season on a high. It expects production this season to lift 2% on last season.

This result is a far cry from the gloomy production expectations during the height of this summer’s drought, it notes.

Meanwhile, it says demand is weak.

In particular, demand from New Zealands key market, China, which ASB says has fallen like a stone.

Export volumes for the nine months to March 2015 are less than half what they were for same nine months a year ago, it says.

It expects this means that the prices will remain low for a few months more.

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