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Butter prices hit four-year low, as GDT dairy values fall again


Dairy prices fell for a third successive auction at GlobalDairyTrade, as butter prices fell to a four-year low to help nullify a gain in skim milk prices – opposite dynamics to those in the European market.


The GlobalDairyTrade (GDT) index dropped by 1.7% to take to 7.4% its decline over the past three auctions, the first three-session losing streak since the height of Covid-19 pandemic panic five months ago.


The decline reflected largely a drop of 2.2% in values of whole milk powder, which accounts for the majority of volumes traded at the event, to a two-month low of $2,936 a tonne.


The drop was in line with that suggested by movement in NZX whole milk powder futures which, having plunged markedly immediately after the last GDT, two weeks ago, recovered most of their lost ground.


That implied that “the milk price outlook is now steadier”, said Commonwealth Bank of Australia ahead of Tuesday’s auction.


EU vs NZ

However, prices moves at the auction were in contrast to those in Europe - in particular for butter - which tumbled by 2.0% at the latest GDT to $3,370 per tonne, its lowest since August 2016.


European Union butter values as of August 9 were, at E3,410 per tonne, close to a three-month high, latest European Commission data show.


The contrasting moves represent in part the seasonal supply cycle, with northern hemisphere output now past its annual spring peak, while that in New Zealand, which provides the bulk of product sold at GlobalDairyTrade, is beginning the ramp up to its annual high.


However, the price divergence – which will have increased an EU premium which stood at $375 per tonne, or 10.6%, for butter as of early August, on commission data – reflects too contrasting demand signals.


Staycation factor

The US Department of Agriculture reported on Friday that “butter prices in western Europe are higher,” particularly in Germany, helped by “increasing demand for packaged butter” and by raised demand too for cream, which competes in processing for dairy fat.


“Increasing prices for spot cream are a factor causing butter pricing to firm,” the USDA said.


In the UK, the AHDB bureau reported the firmness in butter values as down in part to a knock-on effect of the coronavirus pandemic, and the trend for so-called staycations over holidaying abroad.


“Retail demand was supported by more people staying at home for their summer holidays than travelling away,” the AHDB said, while flagging too competitive margins for cream production.


‘Hope for price weakness’

By contrast, for Oceania, the USDA reported pressure on values from rising output.


“Butter production is increasing sharply from seasonal lows.


“Increasing volumes of new season production, with production expected to climb further, have caused many buyers to step back and hope for price weakness.


“Most regular buyers are well stocked and can afford to be discrete in purchasing at this time of year.”


StoneX highlighted ahead of the auction that June data showed Chinese imports of butter falling year on year, with New Zealand export volumes lower too.


Skim milk powder gap

The opposing EU and GDT moves in butter prices were reflected in skim milk powder – a counterpart for butter in raw milk processing – too.


Skim milk powder values gained 1.1% at GDT, to $2,608 per tonne, while dipping 3% in the EU in the week to August 9 to a two-month low of E2,070 per tonne.


The moves will have enhanced a discount in the EU skim milk powder price which stood at $3.01 per tonne, or 11.0%, as of August 2, on commission data.

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