Dairy prices hit 17-month low, amid China concerns

Dairy prices renewed their decline at GlobalDairyTrade auction, falling to a 17-month low, amid ideas that, with Chinese buyers relying on stockpiled product, a revival in values may be some time in coming.

Prices at GlobalDairyTrade, which at the last event rose for the first time in four months, renewed their decline at the first of July's two auctions, falling 4.9%.

The drop took values to their lowest since February last year, and extended to 28% the drop in prices so far in 2014.

But it dashed hopes that the rise in values at the June 17 event had set a floor for values, and might lure back buyers which have stayed on the sidelines while prices have kept dropping.

'Reselling contracts'

Indeed, the fresh decline tallied with a caution from Rabobank last week that producers may have to wait until 2015 for a revival in prices, with milk output much improved in major exporting nations, but Chinese buyers have stepped back, after early-year stockpiling.

"China bought more than we anticipated in the first five months of the year. It now appears they also bought far more than they needed," the bank said.

In fact, China imports of milk powder, while up year on year, have been on a declining trend since March.

Imports of skim milk powder in May, at 41.9m pounds, dropped 17% month on month, while those of whole milk powder fell 27%.

"Although data out of China is murky at best, there is a growing consensus that China stockpiled much of the huge volumes of milk powder it has imported over the past seven months," the US-based Milk Producers' Council said.

"Some importers are reportedly reselling previously contracted milk powder shipments to buyers elsewhere rather than allowing them to reach China, where they are not needed."

Whole milk vs skim milk

At GlobaDairyTrade, prices of whole milk powder, which account for the bulk of volumes sold, performed notably poorly in dropping 5.4%, with particular weakness in values for September-to-November delivery.

The January 2015 contract was only 0.1%, tallying with ideas that it may take some time for Chinese buyers to work through their stockpiles, and for less buoyant price expectations to trim milk production growth.

Prices of skim milk powder fell by a modest 0.9%, increasing above $350 a tonne its premium over whole milk powder which in containing extra fat usually is the more expensive product.

However, weakened demand for milk fats was also evident in a 7.4% drop in prices of anhydrous milk fat, now down by more than one-third so far this year, and a 13.6% fall in butter values.

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