More milk leads to price dips

A near 20% jump in volumes offered in this week's GlobalDairyTrade auction led to a 4% dip in overall prices - the biggest fall since the middle of last year.

Whole milk powder was down 5.7%, skim milk powder down 3.9% and anhydrous milk fat down 3.5%.

Westpac economist Anne Boniface was cautious about ''reading too much'' into a single GDT auction out-turn, as they could be volatile from fortnight to fortnight.

The increased volume of whole milk powder and skim milk powder on offer this week might have been one factor weighing on prices.

However, she would be watching closely to see if the auction result signalled the start of a move lower in prices.

ASB rural economist Nathan Penny said the rise in auction volumes came at a time when New Zealand production usually wound down for the season.

In general, March auction volumes were anywhere from 10% to 40% lower than February volumes as opposed to the near 20% jump this week.

For now, the drop in prices for whole milk powder appeared contained to this season, Mr Penny said.

The news was not all grim as products in Fonterra's cheese and casein stream, as well as butter, bounced higher, hinting that recent falls might have been a blip.

Butter and casein prices stood 34% and 25% higher than their recent November low.

Increased auction volumes and lower prices might tempt more buyers back to the market. Whole milk prices had been about $US5000 ($NZ5958) per metric tonne for the better part of a year, which might have put off some buyers, Mr Penny said.

While interesting, this week's developments were not enough to materially change the outlook, particularly for this season.

At this stage, ASB was expecting about a 15% fall in world dairy prices over the 2014-15 season to translate into a farmgate milk price of $7.80kg/ms.

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