Hopeful signs are emerging that milk powder prices are
stabilising. Photo by Peter McIntosh.
The first lift in GlobalDairyTrade prices since February
is seen as a hopeful sign of prices stabilising.
However, economists cautioned it was difficult to read too
much into one auction result.
Breaking a string of eight consecutive falls, this week's
auction was up 0.9%. Butter milk powder was up 17%, casein
4.6% and whole milk powder and cheddar both up 2.4%, while
anhydrous milk fat was down 3.8%.
ASB rural economist Nathan Penny expected prices to stabilise
further as production growth slowed, before recovering over
the second half of 2014. For now, prices remained under
The risk remained that prices would stabilise at a level
lower than the bank previously expected - the 4% fall in the
previous auction was more than it had factored in, Mr Penny
The bank was also keeping a watchful eye on upcoming dairy
auctions and other dairy market developments.
After record production and average yields in the 2013-14
season, attention was beginning to turn to what New Zealand
might produce next season.
ANZ's latest Agri-Focus said Fonterra's initial estimate of a
2% increase was conservative, given trend growth in recent
years had been close to 6%.
At this stage, the cull cow kill had run 7% ahead of the
five-year average, implying no large retention of budget or
extra cows for next season.
However, estimates on the number of new conversions coming
into production varied from 80 to 150, implying an extra 1%
to 2% increase in cow numbers.
While ''mother nature'' would have the final say, it seemed
unlikely in the short term that average yields could be
pushed higher, given the dramatic increase this season and a
lower milk price forecast for the next, the report said.
The other dynamic behind the conservative production estimate
was the increased competition Fonterra was facing to secure
Existing dairy companies were expanding and a new competitor
- Oceania Dairy, a subsidiary of Chinese company Inner
Mongolia Yili Industrial Group, which is building a $214
million dairy factory at Glenavy - was set to enter the
That implied Fonterra's forecast of total New Zealand
production was likely to be higher than 2%.
Rabobank's agribusiness monthly said market conditions had
softened due to expanding global milk supply combining with a
temporary lull in Chinese import activity.
Production was in positive territory across all major export
regions, excluding Argentina.
After ''frantic'' purchasing in the first quarter of the
year, Chinese importers had exited the market as they sought
to run down accumulated inventories.
Those lower prices were enticing other buyers back into the
market but demand had not been strong enough to soak up
excess global milk volumes, the report said.