Dairy prices down at global auction

Dairy prices dropped 5.1 per cent at the global dairy trade auction on Tuesday night, falling to $US3302 a tonne.

The auction, which sets the pace for dairy farmer payouts, saw benchmark whole-milk powder prices drop 6.7 per cent to $US3099. Skim-milk powder slid

6.3 per cent to $2867 and butter fell

2.4 per cent to $US3886, but there were moderate rises in cheddar and rennet casein.

The auction fell slightly two weeks ago but prices had been rising for several auctions beforehand and ASB rural economist Nathan Penny said the falls were surprising.

Fonterra had added extra volumes to the auction, which Penny said could have been the catalyst for the declines. However, the fundamentals had not changed. ‘‘I’m just a bit sceptical that this is a new level for prices, just given how tight New Zealand and global supply is,’’ he said.

Supply-wise, ‘‘we’re expecting the season to be flat or equal to last season, so given that global demand is growing, that’s adding price pressure, and we’ve seen rises for much of the last three to four months.’’

Chris Lewis, Federated Farmers dairy section chairman, was also surprised by the size of the declines. ‘‘Five per cent does make you look at it and with the US dollar sitting around at 65c, prices are still going to be good for the season. ‘‘As long as it’s just one little speed bump, farmers will not worry. If it’s a sign of other things to come, it might cause a bit of anxiety.’’

Lewis said it was possible the heavy rain might have given bidders a reason to think that the country’s usual summer dip in production might be delayed.

Westpac head of strategy Imre Speizer said the 6.7 per cent fall in whole milk was much larger than the 1 per cent markets had predicted.

Speizer also thought extra volumes at the auction might have had something to do with it.

A further complicating factor was demand from China, which accounted for 56 per cent of the sales on Tuesday night. Growth was expected to slow in China and a trade deal just signed with the United States will require China to buy more American agricultural products.

Offsetting that was the fact that local dairy production was running slightly below last year’s because of a cooler spring and drier conditions in some regions.