Average price at key dairy auction hits record top

The average price of dairy product sold on GlobalDairyTrade topped $5,000 a tonne for the first time as prices of premium products, such as milk protein concentrate, soared, outpacing a flat milk powder market.

The average sales price of dairy products sold at the auction, run by New Zealand giant Fonterra, hit $5,025 a tonne, up 1.7% from the previous event, two weeks ago and up 46% year on year.

The increase reflected in part a drop of 5,000 tonnes in the volume for sale of whole milk powder, which accounts for the majority of product on offer, and is a relatively low-value contract.

However, it also reflected a jump in the prices being paid of higher value products such as milk protein concentrate, as used in the likes of sports drinks, which saw a 7.2% rise in values to an average of $9,657 a tonne.

Strong production

The increase comes despite decent supply prospects, with milk output in New Zealand, the top exporting country, running 3.0% higher year on year in November, and output strong in Europe too.

UK output for the two weeks after Christmas was 9.9% higher than a year before, with total December output the highest for the month in 18 years, while Ireland faces a E30m-40m penalty for production beyond its quota.

"With the continued monthly increases in production it is almost certain that Ireland will now exceed its milk quota allocation at the end of the milk quota year [in March] and that some suppliers will incur a superlevy fine," Simon Coveney, Ireland's minister for agriculture, said on Tuesday.

'Insatiable demand'

However, the market "seems to be about demand rather than supply", said John Lancaster, dairy analyst at INTL FCStone.

"Demand seems to be insatiable at the moment," largely from key importers such as China and Russia.

The GlobalDairyTrade results showed that "premium products now appear to be doing better than commodity products", a reversal of the dynamics which drive Fonterra last month to caution on its profits.

However, Mr Lancaster told that it was "hard to say from a couple of auctions" whether this represented more than a short-term dynamic.

'Driving the market'

Protein was faring particularly well, "driving the market", Mr Lancaster, based in FC Stone's Dublin office, said.

Milk protein concentrate has now risen in price by 61% over the past year.

However, butter is also in demand, with GlobalDairyTrade prices up 15.0% so far in 2014.

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