Dairy product prices decline again

Values of whole milk powder, which accounts for the bulk of volumes sold, dropped by 8.0%.

The futures market had picked a fall of about 5 per cent so it was not unexpected.

Meanwhile, prices for other commodities fell for a sixth straight month in October, declining 2.2 per cent to be 14 per cent lower than year earlier levels. Aluminum prices decreased further by 4.9 percent, with the investment slowdown in China a primary catalyst.

Dairy prices have again taken a hit in the GlobalDairyTrade auction, following a 3.1 per cent fall at the last event. The results of the auction could affect the central bank’s decision on whether to cut interest rates, as analysts widely expect, when it meets next month.

Fonterra has a $4.60 per kg of milksolids farmgate milk price forecast on its books – well short of the $5.30 a kg required for most farmers to reach breakeven.

“The 2015 global market crash has depressed USA exports and pushed down producer returns”, he says.

Williams said a few buyers may have been holding off because in the first December auction Fonterra will introduce a new skim milk and whole milk powder product, expected to have a shorter life of 90-120 days.

“The drop was not a big surprise”, said Brendan Curran, risk management consultant at broker INTL FCStone, noting Fonterra’s announcement on Monday of so-called “enhanced age” milk powder, guaranteed of recent manufacture, and viewed by many observers as a sign of the extent of aged product in store.

“There is ample supply of dairy product available in the global market and buyers generally have plenty of stock on hand so there is little urgency for them to secure additional stock”, she said. The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls almost a third of the world dairy trade.

Even though milk prices are at or just above break-even cost of production levels this fall, global supply-demand conditions will likely improve by next summer.

In addition, there are concerns that the current El Nino weather pattern will result in drought, which will further inhibit output.

The decline in New Zealand milk production gathered momentum in the month of September, according the Dairy Companies of New Zealand data.