Global dairy prices continue to bounce around the bottom in latest auction; GDT Index down 1.4%; Wholemilk powder up 0.7%

By David Hargreaves

There was not much encouragement for the beleaguered dairy sector from the latest GlobalDairyTrade auction, with prices flat at low levels.

The GDT Index dropped 1.4%, with butter and skim milk powder (SMP) prices particularly, weakening. The key wholemilk power (WMP) prices gained overall by 0.7%, however, longer dated contracts were weaker, which sends discouraging signals about future demand for the product.

ANZ Agri economist Con Williams and senior FX strategist Sam Tuck in a commentary headed: "On the back foot still" said the auction result was "weak".

"Price weakness centred on the SMP/milkfat stream highlighting the overhang of Northern Hemisphere product from their spring flush continues to provide buyers with plenty of options and time. SMP only traded at US$1,676/t, which is below European intervention levels of US$1,800-$1,900/t.

"European intervention is expected to be close to full by mid-year after volumes to be accepted were earlier doubled to 218,000MT. This will hang over the market for some time keeping prices pinned down."

They said the small price increases for WMP near-term contract periods indicated that the seasonal low in New Zealand supply was providing some support.

However, the decline in later-delivery contract period prices indicated that buyers were "in no hurry to lock-in higher priced product".

"Buyers appear comfortable that, come the start of the new season, there will still be plentiful product available from either New Zealand, or elsewhere. Time will tell.

"The weak result during the seasonal low for GDT supply and on-going NZD strength remains a concern.

"Both factors will apply pressure to Fonterra’s opening milk price forecast at the end of the month. This will ensure cash flow pressure and spending constraints on the sector for some time to come." See here for the full dairy payout history.