Big Slide for Dairy Prices at Auction

Dairy prices suffered a big drop at the global auction overnight, with declines across the board including a 2 percent decline for butter.

The global dairy trade (GDT) price index was down 5 percent on the last auction for an average price of US$4166 a tonne.

The whole milk powder price index dropped 5.1 percent, with the average price for all contracts now sitting below US$4,000 (NZ$6691.91) a tonne. The average winning price of whole milk powder decreased to US$3757/t.

NZX Dairy insights manager Stuart Davidson said the auction outcome was unsurprising, albeit a little hard for Kiwi farmers to swallow at this point in the season.

Skim milk powder prices had the largest fall at this event, down a massive 8.6 percent to finish the auction at US$3709/t on average, bringing the average below US$4000/t for the first time since February.

Anhydrous milkfat prices fell 2.1 percent, butter prices fell 2.1 percent, and cheddar prices dropped 2 percent.

Notably, from the demand side, key market participants were still at the auction, but with very different buying habits to those of six months ago, Davidson said.

North Asian buyers managed to purchase the largest volume of dairy overall but purchased significantly less whole milk powder than at the previous auction, while South East Asian and European buyers significantly increased their purchase volumes.

North Asian buyers secured the most butter, marginally more than at the previous auction. Butter purchases were more spread across the regions, but South East Asian buyers purchased significantly less than at the previous auction.

The big theme of this auction was very light demand at the initiation of the auction; each commodity started bidding rounds with very lack lustre demand to supply ratios.

“It could be expected that prices will start to find support at these levels soon and look to track higher again into peak New Zealand milk on the back of more agreeable prices for the wider market,” Davidson concluded.

“It also must be noted that the market followed a similar dynamic this time last year, with the market uneasy prior to August. However, this time around, the market is amid a very different set of market functions.”