Dairy auction prices easing, counter to indications

Nathan Penny
Nathan Penny
Dairy prices eased slightly in this week’s GlobalDairyTrade auction, yet again defying futures pricing indications which had pointed to a gain.

Overall prices were down 1% and the fall was broad-based, although anhydrous milk fat — the sole product to rise — posted a record high. Whole milk powder prices fell a modest 0.5% while skim milk powder and butter slid 5.6%.

ASB senior rural economist Nathan Penny said "D-day" had arrived for  dairy production, with wet weather stalling spring production.

Subsequently, the bank  revised its national milk production growth forecast — for all processors — for the season to 3% from 4% previously.

In light of that, this week’s auction result came as a surprise, Mr Penny said in a note.

"After all, New Zealand production is the dominant driver of dairy prices for the products that matter to New Zealand.

"There are some factors in play which may have contributed to the weak result. In our view, however, these factors are all secondary to the material change in New Zealand production," he said.

ASB was sticking with its 2017-18 milk price forecast of $6.75, expecting weak production to translate into higher prices by the end of the year.

Fonterra’s latest Global Dairy Update showed the co-operative’s New Zealand milk collection was last month 2% behind September last season.

Its forecast New Zealand milk collection for 2017-18 was recently lowered from 1575 million kg of milk solids to 1540kg, a 1% rise on last season’s  1526 million kg.

Fonterra’s Australian collection increased 23% on September last year. Continued growth in the co-operative’s Australian milk pool had been driven by both existing and new suppliers that had joined Fonterra this season.

Favourable seasonal conditions, strong pasture growth and reasonable feed input costs across all supply regions continued to support ongoing growth, the report said.

EU production in July was up 2% compared to July last year. The July rise was driven by  growth in Italy, Ireland and Poland, up a combined 10%.

Germany and France, the two largest producers in Europe, were down again in July.

US production in August rose 2% compared to August last year as farmers continued to benefit from increased milk production per cow, reported to be the highest for the month of August since 2003.

Total New Zealand dairy exports in July increased 8% or 23,000 tonnes compared to August last year, the largest rises were seen in WMP and cheese exports.

Australian exports increased 9% in July compared to July the previous year.

EU dairy exports in June rose 11% compared to June last year, while US dairy exports decreased 1% in July compared to July the previous year.

China dairy imports were up 28% or 54,000 MT in August compared to August last year.

Imports of all key dairy categories increased, except for whey powder.

The largest growth was seen in WMP and fluid and fresh dairy, up 17,000 tonnes and 12,000 tonnes respectively.

Chinese imports for the 12 months to August were up 9% or 207,000 tonnes, compared to the corresponding period last year.

Growth was seen across all key import categories, particularly infant formula, WMP and whey, which grew a combined 13% or 147,000 tonnes.

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