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Arla stokes ideas of fall ahead for milk prices

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Arla Foods stocked expectations of a drop in dairy prices later this year hours after prices at GlobalDairyTrade registered their biggest drop in three months, led by a tumble in values of milk fat products.

Peder Tuborgh, chief executive at Arla Foods, the Danish dairy giant, said that while the market had made a "good start in 2014, we are well aware that a lot of milk is being produced in the world at the moment".

Milk production in the European Union was up 4% in November, year on year, with South American output enjoying a strong finish to 2013, particularly in Uruguay, where output ended the year with three successive months of double digit growth.

New Zealand, the top milk exporter, has been running at a pace of 6% growth, although this is expected to rise as 2013-14 progresses, given comparison with the early months of last year when the country's output suffered from drought.

'Pressure on prices'

The rises in output "may put pressure on prices late in the year", Mr Tuborgh said, echoing comment from the US Department of Agriculture's Wellington bureau earlier this week which flagged expectations that New Zealand farmers may not next season enjoy the record prices they are receiving in this one.

"Commentators are warning that the milk solids prices for 2014-15 are very unlikely to be as high this year," the bureau said, as they upgraded by 628,000 tonnes, to a record 21.20m tonnes, their forecast for New Zealand milk output in calendar 2014.

The comments come as GlobalDairyTrade, the benchmark twice-monthly dairy auction, revealed a drop of 1.2% in prices at its latest event, the biggest drop since early November, led by a particularly steep fall in prices of butter, which dropped 3.8%, and anhydrous milk fat, which tumbled 4.5%from the previous event.

"There was a softer tone to prices on the fat side of the dairy equation," said John Lancaster, dairy analyst at FCStone's Dublin office.

'Volumes were higher'

However, he urged caution against reading too much into the results, given increases in volume of product up for sale, so eroding buyers' need to pay up to win product.

"Volumes were higher than for the last event," Mr Lancaster said.

Milk fat volumes rose 6%, and butter tonnage 20%, a reflection of the strong milk volumes in New Zealand, where GlobalDairyTrade is based, selling in the main product from Auckland-based Fonterra, the world's top dairy exporter.

Skim milk powder prices eased 0.1% besides a 20% rise in volumes and although tonnage of whole milk powder, the most popular product for sale, was down 5%, the amount still beat expectations.

"It was 15% more than forecast."

'Forward carry'

There are some signs of expectations of price falls ahead, for example in butter traded on the Eurex trade, where prices for February delivery, at E3,638 a tonne on Thursday, are E138 a tonne higher than for June.

"Europe does have a forward carry for better," Mr Lancaster told

However, signals from the GlobalDairyTrade were mixed.

Skim milk powder prices indeed fared better for nearer-term delivery, with rising prices for April and May contracts, compared with a 4.1% drop in prices for August delivery.

But for whole milk powder, it was the July contract which fared best, rising by 1.5%, outperforming the May lot, which fell by 1.1%.


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