Dairy prices at GlobalDairyTrade tumbled to their lowest in
21 months, led by a plunge in whole milk powder prices, amid ideas that Chinese
demand may have retreated even further than previously thought.
Prices at the twice-monthly auction dropped by 8.9%, as
measured by the GlobalDairyTrade index, matching the fastest rate of decline in
The drop took the index to its weakest since October 2012,
and took to 39% its retreat from a high in April last year.
And it was led by whole milk powder, for which prices
tumbled by 10.9% to an average of $3,088 a tonne.
The decline was attributed to soft demand by China, the top
dairy importer, which has stepped back from purchases after a stockpiling drive
early in the year, co-inciding with a period of tariff concessions on imports
from New Zealand, the biggest milk exporting country.
Rabobank, earlier this week restated a caution over the
extent of Chinese inventories, saying they "remain high, which is keeping some
large importers out of the market temporarily to work through accumulated
The drop in whole milk powder prices - which took their, unusual,
discount to skim milk powder to a three-year high of $427 a tonne – also tallied
with ideas of soft Chinese demand.
"The whole milk powder side especially depends on Chinese
buying," John Lancaster, senior dairy analyst at INTL FCStone's Dublin office,
told Agrimoney.com, terming as "surprise" the "big hit" to prices.
"This shows what happen you have one main buyer, and demand
from that buyer dries up."
Whole milk powder prices, down 38% in five months, are now
below long-term average levels, he said.
The difficulty of obtaining accurate information on China's
dairy sector makes it difficult to foresee how the market will pan out, Mr
Chinese demand is being undermined by improved production, although
estimates vary on how significantly output has improved from last year, when the
dent to volumes from an exit by small farmers from the sector was compounded by
disease and poor weather.
However, milk output in major producing countries has been
on a winning streak, boosted by the incentive to farmers from the elevated
prices, until late.
New Zealand output ended the 2013-14 year, which ended in
May, up 10.5%, while Australian volumes were up 8.2% in May, and European Union
production up 7.3% in April, the latest month available.
US stands apart
US production has remained relatively weak, in part thanks
to poor pasture condition in many major producing states, such as California, until
late, and was up only 1.4% in May.
US dairy prices have proven strong, compared with those at
GlobalDairyTrade, helped by idiosyncratic factors, including the lower production
US sales of non-fat dairy milk rose 8% year on year in May
to a record 60,358 tonnes, driven by sales to Mexico.