Global dairy prices unexpectedly fall in overnight auction

Wellington | Reuters — Global dairy prices unexpectedly eased in the overnight GlobalDairyTrade auction, a platform established by New Zealand’s Fonterra Co-operative Group, the world’s biggest dairy exporter.

Fonterra’s GDT Price Index dipped 1.6 per cent, with an average selling price of $2,458 per tonne, in the auction held Tuesday (all figures US$). Whole milk powder prices fell 4.4 per cent to $2,210. The NZX Dairy Futures market had anticipated a lift in prices.

“The weak GDT results are disappointing given the significant gains anticipated by the market. However, global demand for dairy commodities continues to be weak relative to global milk supply,” AgriHQ analyst Nick Handley said.

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A total of 25,671 tonnes was sold at the latest auction, an increase of 3.1 per cent from the previous sale, according to GlobalDairyTrade.

The auctions are held twice a month, with the next one scheduled for Jan. 19.

After rising steadily since 2008 to scale record highs in 2013, global dairy prices have dropped sharply because of slowing economic growth in China and global oversupply of milk products. China is one of New Zealand’s top export markets and the world’s largest importer of whole milk powder.

The weak dairy prices have put significant pressure on New Zealand farmers. The central bank now estimates around 80 per cent of dairy farmers will have negative cash flow in the current season, posing a risk to the economy.

Economists said the latest auction result adds to the risk that Fonterra will have to lower its milk payout forecast for the current season even further.

Westpac Bank senior economist Anne Boniface said the current El Nino weather pattern could curb New Zealand’s production, which might lift prices.

However, “with European milk production still growing strongly, and the Chinese economy continuing to look relatively soft, a more sustained improvement in prices looks likely to be a while away yet,” she said.

The auction results weighed on the New Zealand dollar , already under pressure due to anxiety about sluggish global growth, further losses in the Chinese stock market and the breakdown in relations between Iran and Saudi Arabia. The kiwi traded as low as US66.77 cents after the result.

Reporting for Reuters by Rebecca Howard.

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