Dairy prices fell to a fresh six-year low at GlobalDairyTrade auction, amid continued doubts over demand, although there were signs of stabilisation in the important milk powder market.
The GlobalDairyTrade index, which is based on prices paid at its bi-monthly dairy auctions, fell 1.3% from the last trading event to its lowest level since July 2009.
Prices of anhydrous milk fat led the retreat, falling by 8.9%.
The decline at the auction, run by the New Zealand milk giant Fonterra, was the seventh in a row – a spree in which prices have slumped by 30% – and chimed with continuing pessimism in the dairy market.
Thomas Bailey, dairy analyst at Rabobank, called the results “right within expectations for us at this point”, highlighting in particular disappointing purchases from China, the top importing country..
‘Russia not coming back’
“China continues to be a disappointment,” said Mr Bailey, nothing that Chinese buyers have been paying a premium for domestically produced milk, in an attempt to support reliable local supply.
This dynamic has helped keep Chinese powder inventories high.
Meanwhile demand from Russia, another major importer, remains moribund, as currency and economic woes mean that buyers “can’t afford” global dairy prices, even at their current low levels.
“Russia won’t be coming back any time soon,” said Mr Bailey.
‘Slowly chipping away’
Prices haven’t been helped by the news last week that New Zealand, the world’s largest dairy exporter, had slashed interest rates, pushing its currency to a five-year low against the greenback.
A lower New Zealand currency means that farmers can endure lower global dairy prices before they have to cut herd numbers or reduce feeding, keeping milk supply ample.
Indeed, in the medium term, Mr Bailey did not see much room for a revival in prices until 2016.
“We simply have to get through the inventories that have accumulated,” he said.
“We see that slowly chipping away for the second half of this year.”
‘Price floor’
However, he added that “we don’t see whole milk powder [prices] coming down much further”.
Indeed, one of the more promising underlying results at the auction, from a seller’s perspective, was that the declines in prices of milk powder, much-watched products, slowed to a crawl – to 0.2% for skim milk powder and just 0.1% for whole milk powder.
Australia & New Zealand Bank on Monday unveiled a “neutral” outlook on dairy markets, noting that in Europe values of skim milk powder were approaching levels which could trigger intervention buying by the European Commission, “which could provide a price floor”.
Dairy prices have also fallen so far that “it is currently cheaper for end users to import milk powder than to purchase domestic raw milk, which may trigger some buying” as China’s domestic output falls back from its current seasonally strong period.
‘Powder values to rise’
Meanwhile, Abares, the official Australian crop bureau, earlier on Tuesday forecast a rise of 3% in prices of whole milk powder prices in 2015-16, to $2,900 a tonne, while values of skim milk powder increase by 8% to $2,800 a tonne.
The forecast reflected expectations of weaker prices deterring producers from lifting milk output.
“Supply from key exporting regions is expected to grow at a slower rate than 2014–15… because lower farmgate milk prices in many countries are expected to limit expansion,” the bureau said,
Abares forecast a rise of less than 1% in New Zealand milk output in 2015-16, while US and European Union output rise by 1%, Australian production by 2% and Argentine volumes by 3%.
US exports will fall over 2015, “because of continued competition in export markets and a strong US dollar,” the bureau added, flagging drops of 75% in butter shipments and 42% in skim milk powder shipments in the January-to-March quarter.
“US exports of dairy products have also faced strong competition from the European Union in markets in Asia, the Middle East and North Africa because the European Union has diverted exports to these markets as a result of the Russian Federation trade embargo.”
Source: Agrimoney
