ASB economist Nathan Penny said he did not regard it as a scene setter for the rest of the season, and it may have been impacted by the «noise» of Brexit.
«We were wary of the fallout from Brexit, but it’s likely to be temporary for dairy markets. That’s not surprising because the UK is a small producer and consumer,» Penny said.
Federated Farmers dairy chairman Andrew Hoggard said, that while it was only one auction, it was concerning and threatened the Fonterra farmgate milk forecast of $4.25 per kilogram of milksolids.
«It was a strange auction, hard to see any pattern. That’s four drops in a row, we need to see prices pick up in the next three or four auctions. They will set the season for the season to a degree,» Hoggard said.
Total dairy prices dropped 0.4 per cent at the auction overnight.
Compared to the last auction when 23,089 tonnes was on offer, last night 32,500 tonnes went under the hammer, with an average price of US$2345.
Whole milk powder prices (WMP) dropped 1.6 percent to US$2062. Farmer returns are largely based on WMP prices, which at the beginning of the year were US$1952.
The amount of WMP on offer was 16,250 tonnes, 56 per cent more than at the previous auction, but the drop in prices indicates low demand.
As the season progresses, the volumes put up for auction are expected to increase, peaking in September.
Skim milk powder prices rose 2.6 per cent, partly spurred on by the fact Europe is intervening and stockpiling record quantities. SMP is a by-product of rising global demand for butter, but there is no similar intervention for WMP.
Europe has put about 250,000 tonnes of SMP into store, with more still pouring in.
Hoggard criticised the EU for its practices, saying because the intervention price masked the true value, people keep producing at levels that perhaps they would not if the real price was apparent.
«This means more goes into intervention, thus when prices recover there is more product to feed back into the market that keep prices depressed just slightly above the intervention price for a far longer period.
«It’s the old adage: do you want to rip the plaster off quickly rather than have a long and painful process,» Hoggard said.
Nigel Brunel, director of financial markets at OM Financial, agreed. He said in 2009 the EU intervened to a lesser degree than at present, and it took three years to clear the product.
Analyst Keith Woodford views the EU intervention in different terms.
«Here in New Zealand, we produce about 400,000 tonnes of SMP every year, which goes into the same markets as does European SMP. So in the short term, the European storage has been a blessing for every New Zealand famer.
«My best estimate is that this storage of SMP is currently buttressing the overall payout to New Zealand farmers by about 30c per kg milksolids, although the precise numbers are debatable,» Woodford wrote.
Penny said New Zealand milk production in May was up 2.5 per cent on the previous year, which might explain the weakness in the WMP prices.
«Once we get past Brexit, the main story will be falling production in New Zealand, Australia and Europe,» he said.
The rennet casein index recorded the largest lift – up 4.9 per cent. Anhydrous milkfat gained 1.1 per cent but the butter index was down 3.1 per cent. Cheddar and lactose were also down by 0.5 per cent and 1.2 per cent respectively. The butter milk powder index recorded the largest movement, down 7.5 per cent.
Source: Stuff
Link: http://www.stuff.co.nz/business/farming/dairy/81782848/global-dairy-prices-slip-whole-milk-powder-prices-fall-16-percent
