Whole milk powder drops at auction
Global dairy prices have dipped in the first auction of the new season.
The Global Dairy Trade Index fell 0.4 percent to US$2,345.
The Whole Milk Powder category fell by 1.6 percent to US$2,062.
Analysts at AgriHQ say that there was a 56 percent increase in the amount of whole milk powder available at the auction.
"The drop in the WMP price indicates that demand is not currently strong enough to absorb the higher volumes of product being offered without some price correction occurring."
AgriHQ says that the volume of product was in line with the amount that would typically be offered in July and volumes are forecast to keep rising until September.
Whole Milk Powder is Fonterra's biggest export product and is a major influence on the payout to farmers.
AgriHQ dairy analyst Susan Kilsby says "Global demand for milk powder remains subdued as most buyers have sufficient stocks on hand to meet their immediate requirements therefore have little urgency to buy right now."
"Global milk supplies are starting to slow in key milk producing regions. Total output is still growing but now at a slower rate. Stocks of dairy products are still growing - particularly in Europe and the United States."
Fonterra is forecasting a farm-gate milk price payment of $4.25 a kilogram of milk solids for this season. That is below Dairy NZ's forecast break-even point of $5.25.
Analysts say that the auction prices will have to rise in order to meet Fonterra's forecast payout, let alone rise anywhere near the breakeven point.
The Skim Milk Powder Index gained 2.6 percent this morning, rising to an average price of US$1,938.
Butter milk prices fell by 7.5 percent, while butter prices dropped by 3.1 percent.
The futures markets had indicated a flat or slightly weaker overall result at the auction.