The GlobalDairyTrade index of dairy prices fell by 8.8% at the latest event, the biggest drop at the New Zealand-based auction in nigh on a year.
The drop trimmed gains so far in 2015 to 16.3%.
The decline reflected falls in prices of all seven dairy commodity prices offered at the event, including a 15.2% slump in values of rennet casein, the biggest drop since the product, which is used for example to improve the melting qualities of cheese, was first traded at the auction in 2011.
Prices of whole milk powder, which accounts for the majority of product sold at GlobalDairyTrade, dropped by 9.6% from the previous auction, on March 3.
‘Futures showing the way’
The declines reflected weakness already evident in futures markets both in New Zealand and the US, traders said, flagging factors including the boost to New Zealand milk production prospects from recent rains, after dryness earlier in 2015.
«Futures markets are showing the way for GlobalDairyTrade,» said Dave Kurzawski, senior broker at INTL FCStone’s Chicago-based dairy division, also flagging expectations of an increase in product offered at the auction.
While the volume traded at the latest event fell by 8.3% to 20,258 tonnes, the lowest since May 2013, Fonterra, the dairy giant which runs GlobalDairyTrade last week prepared buyers for an increase in product offered by 18,720 tonnes over the next year, including an extra 8,575 tonnes over the next three months.
Of this, Fonterra whole milk powder accounted for 16,120 tonnes over the 12-month horizon, and 5,975 tonnes within the three-month timescale.
‘Export woes have only increased’
However, there also appears to be no sign of a return of the Chinese importers whose buying lifted prices two years ago to their highest since 2007, and whose reappearance is seen as key to any sustained dairy price rally.
The US-based Milk Producers Council noted at the weekend that «New Zealand’s whole milk powder exports to China in January were down 69% from December, and 10% from the prior year.
«Since then, New Zealand’s export woes have only increased» with the scare over environmental activists tainting infant formula with 1080 in protest at the use of the pesticide.
«Although officials have stepped up security and inspections all along the supply chain, the threat is likely to weigh on demand for milk powder from New Zealand, particularly in China,» the council said.
China factor
Separately on Tuesday, Rabobank highlighted the dent to Chinese import prospects from rising domestic production, seen rising by as much as 5% as the impact of large investment programmes into large dairy farms feeds through.
«Production and consumption dynamics alone will probably reduce [Chinese] imports by around 50% in the first half of 2015,» the bank said, adding that a run down of the country’s large inventories would «potentially push that down to 60%».
Mr Kurzawski told Agrimoney.com that it appeared that China’s dairy supplies «seem to be more than adequate at this time.
«There is an expectation that Chinese buyers will return in the second half of this year. But that is not a foregone conclusion. They have a lot of product to get through.»
Source: Agrimoney