Dairy prices make soft start to 2014 as SMP drops

Dairy prices made a soft start to 2014 on GlobalDairyTrade, undermined by the biggest fall in skim milk powder values in eight months, amid talk of buyers diversifying their suppliers and of the set-up of a rival market too.

Prices at the auction - which is run by New Zealand's Fonterra, the world's top dairy exporter - fell by 0.8% overall, the first decline in two months.

The decline - despite gains of more than 5% in prices of butter, lactose and milk protein concentrate - reflected in part a 0.6% drop in values of whole milk powder, which accounts for most of the volumes traded at the event.

Skim milk powder prices fell more steeply, by 3.4%, despite a 32% drop to 2,430 tonnes in volumes put up for sale.

In fact, the price fall, the sharpest drop since May, may reflect a switch by buyers' elsewhere to cover their needs.

Switch of origins

"Many people are finding skim milk powder from other places," Kyle Schrad, risk management associate at FCStone's Chicago-based dairy business, told

"Talk in the market is that US exports have been very strong," with European trade believed to be "relatively firm on the powder side" too.

The switch is "in part down to low volumes out of New Zealand, because it is exporting so much whole milk powder," rather than processing milk into skim milk powder.

US volumes appear to have been going mainly as "backfill" into the Middle East and Africa, rather than to the key Chinese market.

European rival?

The results came even as Simon Coveney, Irish farm minister, questioned the growing dominance of GlobalDairyTrade in the international market, since the operation was set up in 2008, and urged the launch of a European Union market.

"At the moment, international trade in dairy markets is basically determined by New Zealand and we produce an awful lot more than they do," Mr Coveney told a conference in Oxford, UK.

"There should be a market [in the European Union] that is available," to help the bloc's dairy industry hedge risks after the abolition of quotas in April next year.

Milk producers in Ireland, where the relatively warm and wet climate favours pasture growth and dairy farming, are poised to ramp up volumes after the abolition of quotas.

In fact, the Eurex exchange already offers futures in butter, skim milk powder and whey, settled against cash, on values derived from France, Germany and the Netherlands.

Chicago-based CME Group already runs dairy futures, as does New Zealand's NZX.

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