Dairy prices drop amid signs of 'capitulation'

Dairy prices fell again at GlobalDairyTrade amid signs of "capitulation" among sellers, which have now seen values of skim milk powder plunge by 20% in two events.

Dairy prices as measured by the GlobalDairyTrade index fell by 6.0% to their lowest since August 2012, taking their decline so far in 2014 to 44%.

Values of rennet casein, used as an additive to cheese in particular for improving texture, fell most by 14.3%, to an average of $8,232 a tonne.

However, among major dairy commodities, skim milk powder was a particular loser, shedding 9.5% to $2,600 a tonne.

This followed a 12.0% decline at the previous event, on August 19 - its biggest decline since 2008, when there was only one GlobalDairyTrade auction per month, rather than the current two.

The drop also, after three months, restored skim milk powder to a discount against whole milk powder, which in containing fat tends to garner a premium.

Russia effect

The decline was viewed, in part, as a reaction to Russia's ban on dairy imports from the European Union, whose producers are attempting to find markets elsewhere for displaced product, albeit with the European Commission this week revealing aid for storage in an effort to quell the tide.

Skim milk powder prices at GDT and (premium over whole milk powder)

Sept 2: $2,600 a tonne, (-$73 a tonne)

Aug 19: $2,874 a tonne, ($69 a tonne)

Aug 5: $3,264 a tonne, ($539 a tonne)

July 15: $3,516 a tonne, ($427 a tonne)

July 1: $3,810 a tonne, ($351 a tonne)

Russia is the fourth-ranked importer of skim milk powder, with volumes this year forecast at 140,000 tonnes by the US Department of Agriculture.

Only China, Indonesia and Mexico import more.

"The Russian import situation probably has a part to play," said Dave Kurzawski, senior broker at INTL FCStone in New York.

'Just get rid of product'

However, noting too a rise in volumes sold to 57,010 tonnes - up 23% from the August 19 event and a 13-month high has also highlighted signs of "capitulation" among sellers whose hopes for a recovery in values have been dashed.

"People have been waiting to see if Chinese buyers will come back into the market, and whether values will go back up again," Mr Kurzawski told

"But it hasn't happened, and I think people have said 'just get rid of product'."

The enthusiasm to get shot of supplies will be being enhanced by a seasonal uptick in New Zealand production from lows around June to a spring high around October.

"Sellers are not going to wait for new production go come in, and get left with even more product on their hands," he said.

'Darkest before dawn'

The hopes for sellers is that Tuesday's result indeed represents capitulation, which tends to precede a recovery in prices.

"It is something that tends to happen just before prices bottom out," Mr Kurzawski said.

"It is always darkest before dawn."

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