The first GlobalDairyTrade auction of the year has seen a
marginal drop in prices of 0.8%.
Interestingly, cheese and casein prices lifted while milk
powder prices dropped. Last month, Fonterra unexpectedly left
its forecast milk price unchanged at $8.30 and slashed its
dividend by 22c due to the disparity between very high milk
powder prices, and those for cheese and casein.
This week's auction hinted that prices of the two streams
might be evening up, ASB rural economist Nathan Penny said.
While overall global dairy demand remained strong,
particularly due to the influence of China, cheese and casein
demand depended largely on developed markets such as the
United States and Europe.
''While it's early days in this development, as the US
economic recovery becomes embedded, cheese and casein prices
may receive further support,'' Mr Penny said.
There was solid demand from forward contracts, pointing to
overall dairy prices holding up to start the year, at least
from the New Zealand perspective. In particular, whole milk
powder contracts for delivery in three to five months time
retained a premium over the nearer contracts.
Forward skim milk powder contract prices, while still high,
were lower for the later contracts, he said.
Late season production had the potential to move the milk
price and/or dividend. Spare production capacity would begin
to open up as milk volumes began to wind down over summer and
The higher production over that period, the more Fonterra
could take advantage of high prices, particularly for whole
milk powder in the absence of serious competition. Westpac
senior economist Anne Boniface expected dairy prices to
moderate in 2014 as global supply ramped up and the global
economy remained lacklustre.
The lift in global supply was broadly happening in line with
expectations and, domestically, conditions remained
favourable and production continued to run well ahead of last