Dairy prices at GlobalDairyTrade fell for an eighth
successive auction, matching the longest losing streak in the event's history, as
ideas for a softening in demand by top importer China intensified.
Dairy values, as measured by the GlobalDairyTrade index,
dropped by 4.2% at Tuesday's event, taking prices to a 15-month low, and
representing the eighth successive loss, and a bigger decline than many
observers had expected.
"It was a little bit of a surprise it was so weak," said Kyle
Schrad, senior risk management consultant at INTL FCStone's Chicago office.
That matched the decline between June and October 2011, the
longest in GlobalDairyTrade's six-year history, although the drop in prices
this time, at 25%, is significantly bigger.
Prices of whole milk powder have proved especially weak, tumbling
29%, leading the retreat at Tuesday's event with an 8.5% drop.
The decline reflects in part rising production, with
northern hemisphere output proving robust following a strong New Zealand 2013-14
season, which ended on Saturday, and is itself expected to have seen production
growth of some 7%.
Although New Zealand, the top milk exporter, is now in its
off-season, "Europe and the US look like they are going to be able to make up
for the New Zealand slow period", Mr Schrad said.
"And New Zealand still has inventory to sell through GlobalDairyTrade,"
which is run by Auckland-based Fonterra, although it sells product from the
likes of Europe's Arla, India's Amul and US-based DairyAmerica too.
Output next season is expected to remain strong too, with recovery
setting in too to Australian production, which rose by 5.6% year on year in
April, limiting to 0.8% the drop in volumes over the first 10 months of
Australian milk output in calendar 2014 will rise 5.3% to
9.90bn litres, the US Department of Agriculture's Canberra bureau said in a
report published on Friday.
China 'backed off'
However, there are concerns of softness in demand too, with
ideas that China, whose import demand sent prices soaring last year, has "very
much backed off", Mr Schrad told Agrimoney.com.
The slowdown reflects in part a seasonal factor, with Chinese
buyers loading purchases to the beginning of the year to reflect tariff concessions
granted very year on a limited volume of product purchased from New Zealand.
"But it looks like China's milk production is also better
than expected," he said.
There has been market talk that Chinese output may be up 5% year
on year, albeit in comparison with a weak 2013 performance, undermined by poor
weather as well as by a switching by small producers to beef.
The results come as dairy processors are already preparing farmers
for weaker milk prices in 2014-15, with Fonterra last week forecasting an
average price of NZ$7.00 per kilogramme of milk solids.
The payout for 2013-14 was pegged at NZ$8.40 per kilogramme
of milk solids.