Dip in prices at GlobalDairyTrade auction

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 into autumn.

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 season.

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