Dairy product prices slide on supply concerns

Dairy product prices declined in the latest GlobalDairyTrade auction, led by a slump in prices for butter milk powder and whole milk powder, amid concern about an increase in supply.

The GDT average winning price dropped 10.8 percent to US$2,746, down from US$3,136 at the previous auction two weeks ago. Some 23,162 tonnes of product was sold, up from 20,258 tonnes two weeks ago.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season decreased by 10 cents per kilogram milksolids to $4.54/kgMS following the GDT auction. This is comparable with Fonterra's $4.70 per kg milksolids forecast.

"The fall in dairy commodity prices is being driven by both local and global factors," AgriHQ dairy analyst Susan Kilsby said in a note. "Locally by an increase in the volume of milk that Fonterra expects to collect this season and a subsequent increase in the volume of product available to sell on GDT has reduced the urgency for buyers to strongly participate in the auctions."

Last week Fonterra advised it would be placing an additional 6,230 tonnes of whole milk powder into the GDT auctions held during the April to June period, according to Kilsby.

"Meanwhile in the international market the removal of the European Milk Quotas is expected to increase the world's supply of milk. Already some Europe companies are targeting Asian markets with dairy products that compete with those supplied from New Zealand," Kilsby said.

"While the total increase in milk from Europe is not expected to be huge, the exact size of the increase is unknown and it is this uncertainty that is making market participants nervous," she added.

Butter milk powder plunged 25.1 percent to US$2,130 a tonne, and whole milk powder sank 13.3 percent to US$2,538 a tonne.

Cheddar dropped 10.5 percent to US$2,787 a tonne, skim milk powder slid 9.9 percent to US$2,467 a tonne, while rennet casein fell 8.0 percent to US$6,980 a tonne.

Butter fell 7.6 percent to US$3,259 a tonne, while anhydrous milk fat retreated 5.3 percent to US$3,663 a tonne.

Lactose and sweet whey powder were not offered at the latest event.

The New Zealand dollar last traded 0.2 percent lower at 74.59 US cents at about 2:02pm in New York, compared with 74.70 US cents at 5pm in Wellington on Wednesday.

There were 96 winning bidders out of 127 participating bidders at the 11-round auction. The number of qualified bidders inched higher to 669, up from 667 at the last auction.