Butter prices tumble 11% at global auction
Supermarket shoppers won’t be reaping all the benefit of the drop, analysts warn Fonterra set to cut milk price forecast
Globally traded butter prices have fallen 25 per cent since September — but supermarket shoppers shouldn’t expect to bank all of that benefit. Butter sank 11.1 per cent to US$4575 ($6648) a tonne at the Global Dairy Trade auction overnight.
“Butter was last at this price level in the early months of this year,” Amy Castleton, AgriHQ dairy analyst, said in a note.
“Butter prices have now declined for five consecutive events, and have lost 25 per cent of their value since September.”
ASB rural economist Nathan Penny said price movements at dairy auctions were far more pronounced than those in retail prices.
“The commodity price is just one component [of the retail price], you’ve got wages, you’ve got transport, you’ve got marketing, you’ve got profit margins for retailers and all of the players in between. You’ll see [retail price falls] with a lag and a smaller magnitude of price fall.”
Retail butter prices hit a record high in October, according to Statistics New Zealand’s food price index, with the average 500g block at $5.67, compared with $3.50 at the same time in 2016.
A 500g block of Anchor butter is being advertised on Countdown’s website for $6 on special, while a block of Mainland butter is $7.60.
Dairy product prices rose overall at the GDT auction, increasing for the first time in five auctions, amid expectations that dry weather in New Zealand may ease milk production.
The GDT price index rose 0.4 per cent from the previous auction two weeks ago to US$3091. Some 29,514 tonnes of product was sold, down from 35,042 tonnes two weeks ago.
Whole milk powder gained 1.7 per cent to US$2830 a tonne.
“The lower volume on offer appears to have provided some support as nearly all of this product was ASB Bank said it expects Fonterra to cut its farmgate milk price to around $6.50 a kg of milksolids today, from the current forecast of $6.75/kg.
Fonterra’s current forecast was last updated in September.
“At this juncture, we expect a 2017/18 milk price of $6.50/kg, while the market consensus is around $6.30/kg,” ASB rural economist Nathan Penny said.
Meanwhile, dairy auction prices consolidated at yesterday’s GlobalDairyTrade auction.
Dairy prices have weakened since September.
“Both overall and whole milk powder prices have dipped by a little Watch For the video go to nzherald.co.nz sold,” Castleton said. “Buyers may also be concerned about the dry conditions in New Zealand. Contracts for shipping in March and April saw the greatest support.” “New Zealand milk production has coped okay with adverse weather conditions to date, but continued dry conditions are likely over 9 per cent since then,” Penny said.
Meanwhile, a near 5 per cent fall in the New Zealand dollar since September has provided some offset.
“However, the full benefit of the New Zealand dollar is unlikely to be reflected in this season’s milk price, however next season’s stands to gain more fully,” Penny said.
The dairy market outlook has also weakened over the same period.
In particular, global production has improved, Penny said. to affect milk production through the summer months,” Castleton added. At the latest GDT auction, skim milk powder climbed 4.7 per cent to US$1774 a tonne, while butter milk powder gained 4.3 per cent to US$1957 a tonne. Rennet casein added 3.4 per cent to US$4879 a tonne, while whole milk powder advanced 1.7 per cent to US$2830 a tonne. Nearest dated contracts fell the most — “Moreover, New Zealand weather and production have recovered somewhat after the very wet spring.”
The current dry weather is starting to pose a risk to New Zealand production, economists said.
At the early morning GlobalDairyTrade auction, the price of whole milk powder (WMP) — a major component of Fonterra’s milk price forecast — rose by 1.7 per cent to US$2830 a tonne, partly reversing a downward trend.
WMP prices have been falling sharply since September 20, when it traded at US$3122 a tonne.
— Staff Reporter prices for butter to ship in January dropped 24.3 per cent, according to Castleton.
Cheddar fell 3.9 per cent to US$3696 a tonne, while anhydrous milk fat slipped 0.6 per cent to US$6836 a tonne.
No prices were available for lactose.
The New Zealand dollar last traded at US68.79c at 12.15pm in New York, compared with US68.59c at 5pm in Wellington the previous day.
There were 123 winning bidders out of 160 participating at the 13-round auction. The number of qualified bidders rose to 563, up from 557 at the previous auction.