New Zealand's dairy prices fall for first time in 2013

Prices  at GlobalDairyTrade auction saw  the first fall  in 2013, as recent persistent rains wash away fears of continued fall in milk output due to New Zealand’s most widespread drought in 30 years.

 

The GlobalDairyTrade index tumbled by 7.3%, its fastest pace of decline in a year, ending an unbroken run of increases at the auction run by New Zealand dairy giant Fonterra, stretching back to mid-December.

 

The decline, from the highest prices on record, was led by the fall in price of whole milk powder,   which  dropped by 10.2%, with skim milk powder close behind with a 9.5% drop.

 

 New Zealand's most widespread drought in 30 years,  in sapping pasture growth and spurring producers to dry out or slaughter animals, have fostered a weak end to the country's 2012-13 production season.

 

A further weather system is expected to bring "a wet end to the week over many parts of New Zealand", with "persistent and at times heavy rain is likely over central areas", according to official forecasters.

 

"It will take a little bit of time to know exactly how much good the rains have done," said Chris Hildebrand at FCStone's dairy office, in Chicago.

 

But the rain has eased concerns among buyers "who went and bought a lot of product" after the New Zealand drought concerns kicked in early in 2013.

 

With those supplies secured, and New Zealand prospects looking better for 2013-14, the next couple of auctions looked likely "to see a little bit of softness" too, Hildebrand said.

 

The wild card which could potentially cause prices to resume their rally would be if China, a major importer, "needed a lot of product real quick", a possibility of which there "has been talk and rumour", but no firm indication. China's dairy imports jumped 14% in the first quarter of 2013, led by whole milk powder, of which the country bought in 68,022 tonnes in March alone, up 47% year on year.

 

"The Chinese appetite for imported infant formula shows no signs of abating," the US-based Milk Producers Council said, noting the growth in smuggling into the country of foreign milk powder, with consumer confidence low in domestic product following scandals such as 2008's melamine tainting furore.

 

World milk production concerns have not ended with New Zealand's rains, with output in the EU and the US also depressed, thanks to a late start to spring, while milk production rates ramp up, and high feed prices.

 

The results of the auction, which came hours after GlobalDairyTrade revealed it was to sell milk for the owner of India's huge Amul brand, also revealed Fonterra product taking the brunt of price falls.

 

In skim milk powder, in which Fonterra product had opened up a premium of more than us$1,000 a tonne to Arla and DairyAmerica supplies, the New Zealand group suffered price falls of 14.6%. DairyAmerica prices fell by, at worst, 7.9%.