Dairy markets take a breather after previous price increases

Dairy product prices dropped 3% at the latest Global Dairy Trade auction, and according to ASB Banks’ Nathan Penny the prices fell largely with expectations.

The ASB Bank Senior Rural Economist said this fall occurred as global dairy markets take a breather and reflect on both the August and September price surge.

According to Penny, dairy markets had gotten a little ahead of themselves as the auction price correction over August and September was rapid and large.

“In view of the recent price surge, it is not surprising dairy markets wanted to catch their breath. Whole Milk Powder prices, for example, had spiked 35% over August and September.

The result was a touch weaker than expectations heading in. Futures market pricing hinted at a WMP fall in the 0% to 2% range prior to the auction.

“The price dip was broad-based, with seven out of eight products on offer recording price falls. Only butter milk powder recorded a rise (up 9.3%),” he said.

However, from here on, he said prices are likely to track sideways before lifting again later in the season.

“From here, we expect prices to track largely sideways over coming auctions as markets wait for further confirmation of weakening New Zealand production.

“In our view, we expect production to continue to weaken and thus for prices to lift again later in the season.

“On that basis, we look to NZ spring data that supports or challenges our view that global production will weaken further over 2016.

“Data so far are consistent with our view. New Zealand production for August was 3% lower than August 2015; with production for the season to date 2.4% lower than over the same period last season.

“Meanwhile, July European Union production fell 1.3% compared to July 2015,” he said.

GDT cool down does not change scope for continued milk price increases

The 3% easing seen in yesterday’s Global Dairy Trade was not necessarily a bad thing, according to IFA National Dairy Committee Chairman Sean O’Leary.

The recovery trend remains solid, he said, with output easing in all regions bar the US, while European Union dairy returns are up the equivalent of 10c/L in the last five months.

This, he said, should give co-ops, whose boards will be meeting from next week to decide on the September milk price, the confidence to further increase it for this and for the coming months.

“Since mid-July, the GDT index has increased 28%, even allowing for today’s small decrease.

This trend is based on lower global milk supplies, and these are also pushing EU dairy commodity prices up in a way which makes it clear that dairy markets are now in full recovery mode.

“New Zealand August milk production was back 3%, with a forecast of a 3% decrease for the full 2016/17 season.

“Milk output in the European Union is back on last year for the second month running in July at -1.4%,” he said.

O’Leary also said that demand is reasonably buoyant, with Chinese dairy imports up 27% for the January to August period, partly due to a dis-improving level of self-sufficiency.

“Co-op boards will be meeting from next week to decide on their September milk price, and they must take account of the intense cash flow pressure which continues on farms, and ensure that every possible cent from improved returns is passed back,” he said.

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