World prices plummet as supply increases

08 Mar, 2017 09:01 AM
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World dairy prices continue to show volatility - with prices down at the latest auction. Source: GlobalDairyTrade
The price for whole milk powder (WMP) - New Zealand's main export product - plummeted 12.4 per cent.
World dairy prices continue to show volatility - with prices down at the latest auction. Source: GlobalDairyTrade

Whole milk powder took a dive at the latest Global Dairy Trade auction overnight, taking the overall export index down with it.

The price for whole milk powder (WMP) - New Zealand's main export product - plummeted 12.4 per cent to US$2782 per metric tonne, following a drop of 3.7 per cent at the previous auction on February 21.

Overall, dairy prices slumped for the second straight auction, dipping 6.3 per cent to US$3512 per metric tonne. Prices were down 3.2 per cent two weeks ago.

NZ Federated Farmers dairy spokesman Andrew Hoggard said the fall would probably not threaten Fonterra's NZ farmgate forecast payout of $NZ6 per kilogram of milksolids but might "take the gloss off" next season's opening prices.

"Recently I asked whether the higher global prices were due to a drop in production or an increase in demand," Mr Hoggard said.

"I think the answer is clearer, that it's because of a drop in production."

Fonterra has recently revised its forecast for New Zealand milk collection for the 2016-17 season from 7 per cent to 5 per cent.

ASB economist Nathan Penny said the bank would be lowering its present payout prediction of $NZ6.50, but would not yet indicate the revised figure.

However he said it stood by its longer term forecast of $NZ6.75 for the 2017-18 season.

"There's more milk around now than expected as lost production has been made up, so prices will be weak for a period," he said.

He agreed with Mr Hoggard that Fonterra's price should stand, as the dairy giant had taken a conservative position when it recently fixed it at $NZ6.

AgriHQ said normally at this time of the season the volume of product being offered on GDT started to fall away, but improved milk intakes in recent months mean Fonterra has more product available to sell than previously anticipated.

"Last night's result shows just how tightly balanced the market is - there just isn't the depth of demand in the market to absorb any extra product at the moment," analyst Susan Kilsby said.

Last week Fonterra increased the amount of skim milk powder (SMP) and whole milk powder (WMP) available at the March 7 GDT event. The volume of SMP offered was lifted by 49 per cent and the amount of WMP available increased by 6 per cent.

The number of bidders participating in the auction was fewer than seen at recent auctions but the number of bidders that secured product was similar to the previous event.

Milkfat products did a lot better than powder. Demand for butter and anhydrous milkfat (AMF) has been very strong throughout the season driven by dietary trends towards natural products and away from synthetic products such as margarine.

Regular grade AMF was priced at US$5515 a tonne, just 0.8 per cent less than at the previous auction, while butter recorded a 2.3 per cent lift in price with unsalted product with a May shipping date making US$4,700 a tonne.

There were 134 participating bidders, with a total of 22,328 metric tonnes of product sold.

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