Dairy prices up on EU clearance

Dairy prices have been boosted by a European Union decision to start selling off warehouses full of skim milk powder it has amassed over the last few years.

The EU has been subsidising European farmers by paying them above market prices for their milk, but then storing it as skim milk powder until conditions improve.

In the latest global dairy auction, prices of all commodities but one lifted

4.2 per cent.

ASB analyst Nathan Penny said the bank was now more positive about its farmer forecast payout. ‘‘Over the past few years, the spectre of large EU intervention stocks has cast a shadow over skim milk powder prices. Global dairy prices have also been impacted more generally, albeit to a lesser degree. Now though, the EU has sold down a significant portion of these stocks, which looks to be enough to convince the dairy market to release the shackles on skim milk prices.’’

Strong sales in December and this month shifted 141,000 tonnes of SMP, leaving only about 22,000 tonnes of intervention stock left.

Whole milk powder – New Zealand’s main dairy export commodity – lifted 3 per cent on the previous auction to US$2777 a tonne. There was also stronger demand for the product.

The price differential between WMP and SMP has recently been significant but is closing. ‘‘That premium which had averaged over 40 per cent between 2016 and 2018 is now down to

15 per cent following the result. This development is giving a timely boost to global dairy prices, going a long way to offset the downward pressure on prices from bumper New Zealand supply,’’ Penny said.