Dairy Prices Jump for Fourth Straight Auction on Supply Outlook

October 7, 2015 06:00 AM

Global dairy prices jumped for a fourth straight auction on dwindling milk supply in New Zealand, helping the currency in the world’s largest exporter reach a six-week high.

Average prices gained 10 percent in GlobalDairyTrade’s auction late Tuesday. Fonterra Cooperative Group last month forecast it will pay its farmers NZ$4.60 ($3.01) a kilogram of milk solids in the season ending May 31. ANZ Bank New Zealand Ltd. said Wednesday the results “are creating further impetus” for the forecast to head back toward NZ$5 while Westpac Banking Corp. raised its projection to NZ$5.30 from NZ$4.30.

Dairy prices slumped to a 12-year low on Aug. 4 amid a global glut and waning demand from China, curbing economic growth in New Zealand, which gets a quarter of its exports from milk powder, butter and cheese. Reserve Bank Governor Graeme Wheeler last month cut interest rates for the third time in 13 weeks and signaled a further decline, citing the effect of falling dairy prices on investment and spending.

“We view rebounding dairy prices as challenging the need for further immediate OCR cuts given that low dairy prices were a huge reason behind the RBNZ cutting rates in June, July and September,” said Con Williams, rural economist at ANZ in Wellington. ANZ continues to forecast a pause before a cut in the official cash rate to 2.5 percent in March.

New Zealand’s dollar gained 0.8 percent as the auction result reduced the odds that the RBNZ will cut interest rates in October. Shares in the Fonterra Shareholders’ Fund, which track the cooperative’s earnings and dividends, rose 1.2 percent to NZ$5.28 at 12:04 p.m. Wednesday in Wellington, trimming the decline for the year to 12 percent..

Dairy Rebound

Prices in the GlobalDairyTrade index have rebounded 63 percent from the Aug. 4 low after Fonterra, the world’s biggest dairy exporter, reduced the volume it offered at the auctions as early season production dropped as much as 8 percent from the year earlier.


“The powder market remains hyper-sensitive to New Zealand supply conditions and GDT offer volumes,” said Williams. “The slow start and limited GDT offerings are expected to continue to be price supportive for now, especially while it’s the Europeans seasonal lull for milk supply and seasonal high period for Chinese milk imports.”

Fonterra said Sept. 24 it expects New Zealand milk supply will fall at least 5 percent this season after farmers culled cows and stopped using food supplements as their incomes declined.

Outlook Weaker

“The production outlook has materially weakened,” said Chris Tennent-Brown, senior economist at ASB Bank Ltd. in Auckland. “As data becomes available to confirm this, prices will lift further.”


The average price for whole milk powder rose 13 percent to $2,824 a metric ton, GDT said. They reached a high of $5,245 in April 2013.

Whole milk powder prices need to reach at least $3,000 a ton to underpin Fonterra’s NZ$4.60 payout, Chief Financial Officer Lukas Paravicini said in an interview on Sept 24. The cooperative still expects the powder price to recover to its long-term average of $3,500 in time, he said.


Back to news




Spell Check

Diamond dairy
LaRue, OH
10/7/2015 09:21 AM

  Tim there is one way for the small dairymen to fix his problem and that is too grow his herd.

Tim Hagley
Standish, MI
10/7/2015 11:56 AM

  Expanding into an oversupplied market, only a dairy farm beholding to a Bank can entertain that concept or vice a versa.

Tim Hagley
Standish, MI
10/7/2015 07:30 AM

  Amazing the rest of the world dairy actually operates on the concepts of supply and demand, unlike US, we keep prices high to save big Dairy & Banks while dumping 100's millions of lbs. down the drain, making small Dairy pay for it, while that deduction is neutralized for large Dairy through a volume premium payment, thus causing the largest small dairy exit since the 1960's and continued expansion for large Dairies. There is NO Supply and Demand economics anymore , Too Big To Fail dominates Dairy in US.


Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by QTInfo.com
Brought to you by Beyer