Dairy product prices drop to lowest since August 2009

Dairy product prices fell to the lowest level in more than five years in the latest GlobalDairyTrade auction, led by declines in butter milk powder and whole milk powder.

"Stocks of dairy commodities are building across the globe due to Russia's current ban on importing dairy products from many Western nations, and a lack of urgency from Chinese buyers, while at the same time global milk supplies are expanding," AgriHQ dairy analyst Susan Kilsby said in a note.

The GDT average winning price fell 7.3 percent to US$2,599, the lowest since August 2009 and down from US$2,795 two weeks ago. It has slumped nearly 50 percent from a peak in February. Some 55,057 tonnes of product was sold, up from 50,801 tonnes of product two weeks ago.

The dairy auction is the first since Fonterra slashed its forecast payout for the current season by 70 cents to $5.30 per kilogramme of milk solids, a level predicated on global prices for whole milk powder recovering to about US$3,500 per tonne by March next year.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 5 cents to $5.05 per kilogramme of milk solids following the GDT auction, indicating that if the latest GDT prices were achieved across the entire season the milk price would be just $3.90/kgMS.

"The volume of whole milk powder being offered on GDT is at its seasonal peak and buyer demand is simply not strong enough at present to clear the large volumes without prices being impacted," Kilsby said.

"A farmgate milk price of $5.05/kgMS means that most farms will be barely covering costs of production meaning there will be virtually no cash available for debt repayments or discretionary spending such as upgrading plant and equipment," according to Kilsby.

In the latest GDT auction, butter milk powder sank 11.3 percent to US$2,723 a tonne, while whole milk powder slumped 10 percent to US$2,443 a tonne.

Sweet whey powder dropped 9.3 percent to US$1,175 a tonne, butter slid 6.6 percent to US2,514 a tonne, while anhydrous milk fat declined 5 percent to US$3,117 a tonne.

Skim milk powder fell 2.7 percent to US$2,540 a tonne, rennet casein slipped 1.4 percent to US$8,224 a tonne, while cheddar retreated 1.2 percent to US$3,028 a tonne.

Lactose was not offered at the event.

The New Zealand dollar traded as high as 78.61 US cents before the release of the auction results. It fell as low as 77.81 US cents after the release and recently traded at 77.94 US cents.

There were 145 winning bidders out of 167 participating bidders at the 13-round auction. The number of qualified bidders rose to 657, up from 642 at the last auction.

(BusinessDesk)