Has the tide turned? Dairy prices partially rebound at GDT

Dairy prices partially rebounded at this morning's GDT auction. Photo / File

Dairy prices staged a partial rebound at this morning’s Global Dairy Trade (GDT) auction, driven mostly by gains in whole milk powder and supported by buying out of Southeast Asia, Oceania and the Middle East.

Prices overall, as measured by the GDT index, were up by 2.7 per cent, following on from the 7.4 per cent fall at the last auction on August 15.

The average price was US$2888 a tonne.

Whole milk powder prices firmed by 5.3 per cent to US$2702 a tonne after falling by 10.9 per cent to a five-year low last month.

Skim milk powder, which along with whole milk powder helps determine Fonterra’s farm gate milk price, eased 1.6 per cent to US$2286 a tonne.

It was a mixed bag for the other products.

Anhydrous milk fat gained 2.7 per cent to US$4561/tonne and butter gained 1.1 per cent to US$4588/tonne while butter milk powder fell 6.5 per cent to US$2215/tonne.

Cheddar prices fell 0.6 per cent to US$4102/tonne.

The auction took just under three hours to complete.

Futures market pricing suggested the auction would be flat, with a modest improvement.

HighGround Dairy consultant Stu Davison said it was “a bit of a bounce”.

He added: “There were a few signs that it was not as clear as the price pointed to.

“China was the biggest buyer but they were not the most aggressive.

“Southeast Asia, Oceania and the Middle East took a higher chunk than normal, so they drove the result,” he said.

Fonterra cut its farmgate milk price twice last month.

It now sits at a mid-point of $6.75/kg, well down from DairyNZ’s revised estimate of break-even - $7.51/kg.

The industry group says farmers could expect 12-18 months of reduced income due to the current poor state of the market.

Davison said the auction result was supportive of Fonterra’s current forecast range.

“It keeps the forecasts that Fonterra has in range, for the time being.

“But we have got to see the market turn on this result for it to continue.

“I personally don’t think that it’s a market-turning auction.”

NZX dairy analyst Alex Winning said the market is yet to point in a clear direction.

“Prices have continued to bounce around, peak and trough over the last year, and with the inventory and supply story remaining supported globally and economic woes continuing to impact spending capacity, it is difficult to see a full rebound in prices in the near future.”

ANZ agricultural economist Susan Kilsby said today’s gain had arrested the sharp drop in pricing that has occurred since May.

“While it may not be all positive sailing from here on, it does indicate the market is starting to take note of concerns of reduced milk production from New Zealand this season, and/or is seeing value at current prices,” Kilsby said in a commentary.

“It looks like market participants are starting to realise that milk production in New Zealand is likely to be constrained this year due to adverse weather and low returns.

“Some positivity surrounding China’s economy may have also contributed to the result.”

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.