Dairy prices fall again, as supply ideas mount

Skim milk powder led dairy prices at GlobalDairyTrade to a 15-month low, undermined by "intense supply competition" being fostered by increased output in the likes of Europe and New Zealand.

The GlobalDairyTrade index of dairy prices fell by 1.8%, its seventh successive decline, the longest since 2011, during which values have fallen by 22%.

The latest drop, which came amid a drop in volumes to the lowest in nearly a year, was led by skim milk powder, which dropped in value by 3.5%.

And it comes amid increasing evidence of farmers succeeding in raising production in response to prices which remain elevated by historic standards.

'Several million litres of buttermilk dumped'

In Europe, the UK, for instance, enjoyed record production last month, and has seen May deliveries remain more than 10% higher than a year ago.

In New Zealand, collections by Fonterra, which collects the great majority of milk in the top exporting country, have risen by 7.7% so far in 2013-14, which ends this month, with volumes overwhelming processing facilities at high season around October.

"So much milk was produced at the peak that Fonterra factories couldn't cope with it all, and several million litres of buttermilk was dumped at a couple of sites in the North Island," US Department of Agriculture staff in Wellington said in a report published overnight.

The extra supplies have changed the dynamics of a market marked last year by large demand, largely from Asia, and constrained availability.

Falling skim milk powder prices reflect a "market environment of intense supply competition from both northern and southern hemisphere sources", industry group Dairy Australia said in a market report last week.

'Europe is flush…'

At broker INTL FCStone's Chicago office, senior broker Dave Kurzawski said: "Europe is flush with milk. New Zealand and Australia are flush with milk.

"Buyers have seen that and have are not filling up so much - they have more to choose from," meaning less urgency in securing supplies.

"The demand is there, but it is going through a slow patch right now," with the market "more in equilibrium right now" than the deficit situation which existed last year, Mr Kurzawski told

GlobalDairyTrade prices appeared to be in an "orderly decline" while it sought a level which would encourage more demand.

New Zealand plateau ahead?

The strong New Zealand production performance prompted the USDA bureau to lift its estimate for the country's output in calendar 2013 by 522,000 tonnes to 20.2m tonnes, and raise its forecast for 2014 by 781,000 tonnes to 21.35m tonnes.

"'Onward and upward' would appear to be the catchphrase for New Zealand dairy farmers at the moment," the bureau said.

However, the 2014 upgrade disguised an expectation of year-on-year growth petering out in the July-to-December period, with lower productivity offsetting an increase of some 70,000 head in the New Zealand herd.

"Milk production in the second half of the year is unlikely to exceed the volume produced during the same period in 2013," the bureau said, citing the enthusiasm among farmers to maximise early-2014

"This means that cow condition at calving isn't likely to be as good as in 2013" and that calving dates "will be slightly delayed in 2014, which will result in cows having less time to get to peak production in October and probably not hold the peak for as long".

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