World dairy prices up

05 Apr, 2017 09:37 AM
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GlobalDairyTrade auction prices rose for the second consecutive time at the auction overnight. Source: GlobalDairyTrade
Dairy markets had more resilience than we gave them credit for ...
GlobalDairyTrade auction prices rose for the second consecutive time at the auction overnight. Source: GlobalDairyTrade

Solid Chinese and south-east Asian demand and a wide range of buyers underpinned a 1.6 per cent rise in the GlobalDairyTrade auction on Tuesday night.

The price for New Zealand's main export, whole milk powder (WMP), went up by 2.4 per cent to US$2924 per metric tonne.

Overall, dairy prices lifted to an average US$3005 per metric tonne. Skim milk powder (SMP) dropped 0.8 per cent.

A slight rise in prices at the last auction on March 21 came on the heels of two consecutive drops.

Westpac analyst Sarah Drought said the auction result was an encouraging sign that prices were stabilising.

"We had been concerned there might have been a fall but demand from China and south-east Asia has remained solid. Growth in China is the key," she said.

"Dairy markets had more resilience than we gave them credit for, as buyers stepped in to take advantage of lower prices."

As a result, Westpac has lifted its forecast payout figure for New Zealand farmers for the season to $NZ6 per kilogram of milksolids, in line with Fonterra's forecast.

The United States Dairy Council said in its latest update that the combination of light inventories and financially pressured farmers in China should see greater imports in to the country to bolster domestic supply.

It warned, though, that China typically bought 40 per cent of its WMP needs for the year in the first quarter of the financial year.

ASB rural economist Nathan Penny said that with the better-than-expected New Zealand summer and autumn production now largely priced in, he expected WMP prices to "tread water around these current levels".

"With that in mind, we note that a broad range of buyers (Middle-Eastern, African and European) participated in the auction overnight. Whereas in prior auctions, they may have waiting in the wings, anticipating further price falls," he said.

"Heading into next season and as the New Zealand production fillip clears markets, we expect WMP prices to remain well-supported and to drift higher."

European SMP stocks sitting in warehouses are at 352,000 tonnes, with more likely to be added.

In several countries, milk production will be cut to halt growth. In the Netherlands between 100,000 to 150,000 cows could be removed this year to reduce phosphate levels, trimming production by 5 per cent, and in Ireland farmers have milked less in the first months of the year compared with last year.

Milkfat products delivered mixed results with butter prices falling while anhydrous milkfat (AMF) prices lifted. AMF is now slightly more expensive than butter when priced on a milkfat content basis.

The auction also delivered a poor result for cheese with the cheddar price index down 4.4 per cent. This product is also under pressure with strong competition from European suppliers.

​The 157 participating bidders bid for a total of 22,642 metric tonnes of product.

The result reinforces a forecast from the NZ Ministry of Primary Industries that the value of dairy exports would rise to $14.5 billion for the year to June, up from $13.2 billion in 2016.

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