October 16, 2014

 

World dairy prices stabilizing?

World dairy prices showed signs of stabilisation as the GlobalDairyTrade price index increased 1.4% at the fortnightly auction, the New Zealand Herald reports.

 

The average winning price was US$2,640/tonne.

 

Overall, there were 167 bidders at the auction and 50,816 tonnes of product was sold.

 

Whole milk powder sold for US$2503/tonne, a rise of 3.1% from the last auction in early October. According to Fonterra, whole milk powder would need to reach US$3500/tonne by March 2015 if its revised farmgate forecast of US$5.30/kg of milk solids is to be met.

 

In the meantime, the price of another important commodity group, skimmed milk powder, has dropped by 3.6% since the last auction, at US$2,462/tonne.

 

The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest GlobalDairyTrade prices were achieved across the entire season, the milk price would be just US$3.90/kgMS.

 

"Despite a higher whole milk powder price, the AgriHQ Seasonal Farmgate Milk Price has fallen further as the recovery in dairy commodity prices is now expected to be slower", said Susan Kilsby, a AgriHQ dairy analyst.

 

In addition, whole milk powder will not penetrate through US$3,000/tonne until April 2015, according to the NZX Dairy Futures market. Previously, this development is expected to occur by the end of 2014.

 

"A farmgate milk price below US$5/kgMS will make it extremely difficult for farms to turn a profit this season", Kilsby explained. This may mean that farmers will reduce spending which also affect businesses that supply products and services.

 

Kilsby also warned that the lack of profitability in the dairy sector could hit small rural towns as well as New Zealand's economy.

 

Last week, Fonterra cut by 7% the volume of whole milk powder it would sell on GlobalDairyTrade over the next 12 months.

 

"The lower volume of product on offer is likely to provide some support to prices, but as volumes are close to their seasonal highs it will take some time for this market to fully recover," Kilsby said.

 

Various developments including a rising inventory in China, trade sanctions between Russia and Western nations, and rising production in New Zealand and international regions, have contributed to a near 50% drop in dairy prices since February 2014.