Dairy prices drop again at GDT

(File)
(File)

Prices have fallen again at the latest GlobalDairyTrade (GDT) auction.

The GDT price index fell 7.9 percent to an average of US$2345 per metric tonne.

It is the third successive auction at which prices have fallen.

The price index fell 7.4 percent two weeks ago, after dropping 3.1 percent at the previous auction.

Whole milk power fell by 11 percent this morning to US$2148 per metric tonne. Whole milk powder is a crucial product for Fonterra because it has a major influence on the payout to farmers.

Skim milk powder prices fell by 8.1 percent on average to US$1851 per metric tonne.

Dairy analysts at AgriHQ have cut their forecast milk price by 44 cents to $4.27 per kilogram of milksolids. This is lower than Fonterra's current forecast of $4.60/kgMS.

"The fall in the AgriHQ 2015-16 Farmgate Milk Price is driven by both the drop in GDT prices and lower expectations for dairy commodity prices for the remainder of the season," says AgriHQ dairy analyst Susan Kilsby.

The New Zealand dollar had a muted response to the auction. The Kiwi dipped from around 64.75 US cents at 4am to 64.57 cents by 6am. That means it was almost back to where it was at 5pm yesterday, when it was trading at 64.58 cents.

AgriHQ says the futures market shows very little upside for dairy commodities through to the end of the 2015-16 dairy season. It says whole milk powder prices are now only expected to reach US$2400 by July of next year, after having fallen US$400 in the past fortnight.

"The NZX Dairy Futures market predicted milk powder prices would fall 6 percent at the November 17 event, but the fall in GDT prices was larger than anticipated," Ms Kilsby says.

"The current outlook for the dairy markets means Fonterra's milk price forecast of $4.60/kgMS is now under considerable pressure.

"At present buyers are generally well stocked and have ample supply options for dairy commodities. Therefore we currently see very little urgency from buyers. The drop in milk output from New Zealand in recent months has been matched threefold by the increase in production from Europe. Until global milk supplies drop further, prices are expected to remain soft."

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