GDT prices weaker despite latest rises

Nathan Penny.
Nathan Penny.
Dairy prices have ended the year on a positive note with a 1.7% increase in this week's GlobalDairyTrade auction.

But despite the rise, prices have fallen more than 17% overall since the start of the 2018-19 season.

This week's auction lift followed a similar lift at the previous auction, although before that rise came seven consecutive price falls.

The catalyst for the fall this season remained in play, as New Zealand dairy production remained very strong, ASB senior rural economist Nathan Penny said.

''If anything, recent rain could mean that New Zealand production is particularly strong over this summer,'' he said.

New Zealand's exceptionally strong milk production was in contrast to a continued slow-down in milk supply across the ''big seven'' dairy exporting regions in the final quarter of 2018.

Rabobank's latest dairy quarterly report said milk supply across those regions (the EU, United States, New Zealand, Australia, Uruguay, Argentina and Brazil) sank to 0.8% year-on-year in quarter three and indicative quarter four numbers showed a similar modest growth rate.

The minimal growth rate was largely due to lower production in Australia, the EU and the US, Rabobank dairy analyst Emma Higgins said.

While production growth in those regions were slowing, other corners of the dairy exporting globe were posting positive production growth.

Brazil had moved into growth territory during quarter three, as a result of more moderate feed costs and profitable milk prices, while Argentinian producers had overcome inflated milk production costs and continued to make a recovery from the low volumes delivered in recent years, Ms Higgins said.

The ''star performer'' clearly remained New Zealand, which set a record for peak milk flows in October.

The counter to strong New Zealand milk production had been sliding Oceania commodity prices, she said.

''With season-to-date milk production in New Zealand tracking 6% higher than last year, the additional product has needed to find a home.

''There's been 17% more whole milk powder offered on the GDT platform over the course of the season, and the average whole milk powder price has tracked equally lower over this time,'' she said.

The bank had revised its full-year forecast from $6.65kg/ms to $6.25 for the 2018-19 dairy season.

The report indicated a challenging environment for global milk production expansion lay ahead in 2019.

Herd numbers continued to shrink in Australia, Europe and the US to either mitigate escalating costs and/or overcome disappointing farm-gate milk prices.

Australia faced a slow recovery with industry confidence severely knocked, while consolidation of farms in the US and Argentina was set to continue and the EU was finding its footing after quota removal and drought impact, Ms Higgins said.

New Zealand would also face barriers to milk production growth in 2019 due to stronger competition for other land uses and resource constraints.

Considerable uncertainty underpinned the dairy demand outlook for the year ahead, the report said.

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