The latest Global Dairy Trade auction result was a good reflection of the current fragility in the dairy market, according to ASB Bank in New Zealand.
After a positive result last auction, weak commodity market sentiment, particularly from oil, knocked dairy prices back at Fonterra’s latest Global Dairy Trade auction, it says.
According to Nathan Penny, ASB Rural Economist, the rise and fall nature of dairy prices is likely to continue.
He said that over the coming months any price lift will be modest and often accompanied by a subsequent price fall.
Penny goes on to say that in the longer term, the weakness of dairy markets will re-enforce the cycle of price recovery.
He also said that New Zealand dairy farmers can expect milk prices to remain low this year, if they stay low during the first half of the season.
The sixth Global Dairy Trade auction of the year, took place this week and it saw a drop in dairy product prices of 2.9%. This fall comes after dairy products rose 1.4% at the previous auction, on March 1.
The New Zealand bank had previously expected dairy prices to rise at the Fonterra auction on Tuesday, but due to the influence of commodity prices and EU policy changes, this was not the case.
ASB Bank says that the price drop followed weaker commodity prices, as Brent oil futures lost further ground taking prices back to around $38 (€34) per barrel, after ending last week above $40 (€36).
European Dairy Aid Muddies the Waters
Penny also said that the announcement earlier this week of EU support measures for the dairy industry may have muddied the dairy price waters.
He says that due to the changes in EU support measures, buyers were likely to have taken a step back to see how the changes affect the market.
Global Dairy Trade – Key Results
- AMF index down 6.5%, average price US$3,014/MT
- Butter index down 2.8%, average price US$2,733/MT
- BMP index up 6.4%, average price US$1,545/MT
- Ched index down 5.6%, average price US$2,441/MT
- LAC index up 0.8%, average price US$624/MT
- RenCas index down 7.0%, average price US$4,083/MT
- SMP index down 2.5%, average price US$1,731/MT
- WMP index down 0.8%, average price US$1,971/MT
