Prices dropped for the fifth consecutive Global Dairy Trade auction by 2.9 percent in aggregate but with widely differing components.
Prices for grades of whole milk powder (WMP) both rose and fell while products with different contract periods (CP), or shipment dates, also behaved differently.
Fonterra was one of the causes of the GDT price falls, by substantially increasing the volume of instant WMP on offer, thereby reducing prices for that grade by as much as 33 percent in CP2.
Regular grade WMP prices actually increased, reversing the trend of previous auctions, which is a positive sign to show they may be finding a floor, ASB economist Nat Keall said.
WMP prices for the near contract periods, CP1, CP2 and CP3, were either steady or increasing, while for CP4 and CP5 the price reductions were between US$600 and $1000/tonne, or 10-18 percent. UHT WMP prices also rose although the overall effect for the WMP index was a fall of 4.9 percent and that was the main influence on the GDT price index (all products) falling 2.9 percent.
It was a case of the averages for different product types differing widely and obscuring the individual results.
“If it wasn’t for the large reshuffle of prices for WMP grades, this average auction outcome would have been much more benign,” NZX dairy analyst Stu Davison said.
“Milk fats both continue to surprise; anhydrous milk fat made an average price gain, while butter prices retreated further, which was unexpected.”
AMF was up 0.6 percent and butter was down 1 percent, skim milk powder fell 0.6 percent and cheddar was steady at minus 0.1 percent.
Davison said the pattern of buying seems to be opportunistic.
“This hand-to-mouth buying is creating odd patterns of demand, but still demand none the less.”
Therefore, he remained optimistic on the dairy market because demand was steady while supply remains restricted.
The economic crisis in Sri Lanka has made Fonterra re-route milk that was destined for consumer goods in Sri Lanka into powders instead. That diversion now seems largely complete.
“Fundamentally global supply remains tight, and we expect this tightness to support prices over the second half of calendar 2022 and into 2023. Indeed, global grain feed prices remain very high and continue to put the squeeze on farmer margins in the United States, Europe and Australia.”