Prices eased at the globalDairyTrade auction for a third successive session close to a three-year low, led by whole milk powder, despite evidence of slowing milk production growth in the US and some parts of Europe.

GlobalDairyTrade's benchmark index fell 0.9% to its second-worst reading since September 2009, led by a 5.8% slump to an average of $2,584 a tonne in prices of whole milk powder, which accounts for most of the volume sold at the auction.

Indeed, whole milk powder prices fell close to those seen in May, when values reached their lowest since August 2009.

Prices of cheddar cheese and rennet casein also fell, offsetting firmer results for butter milk powder, skim milk powder and milk fat.

Production setbacks 

The decline leaves prices 39% below levels at their last peak, in March last year, since when they have been undermined both by disappointing demand, softened by macroeconomic weakness, and by soaring production, raised by unusually benign pasture conditions in major exporting countries such as New Zealand.

However, milk production expectations have taken a hit from rising grain prices, which raise feed bills, especially in the US, where drought has damaged grasslands.

Just 18% of US pasture condition was rated in "good" or "excellent" condition as of Sunday, down three points week on week, and compared with 46% a year before.

In California, the top dairy state, 5% was rated "good", with none excellent, and 75% in "poor" or "very poor" health.

Increased slaughter 

Separately on Tuesday US Department of Agriculture analyst Rachel Johnson, explaining downgrades last week to forecasts for domestic milk production, cautioned that "the prospect of rising feed prices will likely accelerate" a trend of raised cow slaughter seen since May.

"Recent high temperatures will likely restrain milk production over the course of the summer," she added.

However, she warned that "relatively weak forecast income growth is expected to soften demand, tempering the price effect of reduced milk production".

'Higher pasture growth potential' 

Other countries see milk production growth slide include the UK, where daily deliveries in the two weeks to July 7 were, at 37.4m litres, down 1.0m litres on the same week last year, and 400,000 litres below the three-year average.

The decline has been blamed in part on falling farmgate prices which have left UK dairy farmers facing an average annual loss of £40,000, on National Farmers Union estimates.

However, prospects for a slowdown in New Zealand output have been set back by an improvement in pasture conditions back to last season's levels.

"Temperatures have generally risen in the past week and are resulting in higher pasture growth potential," Agrifax said, adding that its pasture growth index was "forecast to continue to steadily increase over the next fortnight".

Furthermore weighing on prices has been inventory data has showing generous supplies of some products, with European Union butter volumes key under the private storage aid programme 35% higher than a year ago.