New Zealand milk prices follow Europe, US lower

09.03.2017

Diary prices at the GlobalDairyTrade auction slumped to multi-month lows, as New Zeland prices gave back their premium to sluggish US and European markets.

The fall in prices follows an increase in product volumes being offered at the auction, which is run by New Zealand dairy giant Fonterra.

Whole milk powder prices tumbled 12.4% to their lowest level in four-and-a-half months.

And skim milk powder prices fell even sharper, down 15.5%, to their lowest level in six-and-a-half months.

Premium narrows

The fall in skim milk powder helped prices for the commodity In New Zealand give back some of their "inexplicable premium" to US prices, said John Spainhour, broker at Rice Dairy.

"I would say that the GlobalDairyTrade skimmed price has held up a very big premium to the US and European price for a very long time," Mr Spainhour, told Agrimoney.

"That's really been a point of confusion over here; why is the GlobalDairyTrade so strong relative to the US and European market.

'Still some real estate to give up'

But that premium has now narrowed sharply, as an increase in the amount of milk being made available at the auctions "the broke the back" of the market, Mr Spainhour said.

"Last week we saw volumes on this auction increased by a very large amount, especially on skim," said Mr Spainhour.

"Those increases in volume are what lead to the decreases in skim and whole milk, particularly skim."

And Mr Spainhour warned that even now, "New Zealand has some real estate to give up, because even after today's declines there's still at a significant premium to the US and European markets".

'Time for some ground trothing'

The fall in prices slightly exceeded that seen on futures markets since the last GlobalDairyTrade auction.

Ahead of the auction, Tobin Gorey at Commonwealth Bank of Australia warned of the bearish effect of upward revisions to New Zealand dairy production.

"This will be the first GlobalDairyTrade auctions since the market has widely marked up their New Zealand milk production forecasts," Mr Gorey said.

"Dairy markets are, in any case, about to get some ground truthing."


Agrimoney

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