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Dairy rally at GDT falters, as butter values melt

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Dairy prices fell at GlobalDairyTrade for the first time in three months, undermined by a tumble in values of butter, output of which has been supported in Europe by buoyant milk production.

 

The GlobalDairyTrade (GDT) index fell by 0.6% at Tuesday’s auction, ending a winning run which had seen prices gain 8.4% since early September.

 

Fats led the decline, with anhydrous milk fat tumbling by 5.1% to 4,840 a tonne, and butter by 4.9% to $3,983 a tonne, in both cases the weakest values in nigh on a year.

 

By contrast, among dairy proteins, rennet casein values soared 4.9% to $8,047 a tonne, topping $8,000 a tonne for the first time since March 2015.

 

Fonterra, the New Zealand dairy giant which sells most of the volumes marketed through GDT, revealed last week it was cutting by 200 tonnes the volume of rennet casein it would be selling through the platform over December and January, a decision “driven by product mix optimisation”.

 

‘Strong supplies’

The fall in butter values at GlobalDairyTrade echoes softness in the European market, where the product was worth E3,630 a tonne as of November 24, according to the latest European Commission data.

 

That price, down 21% year on year, returned values close to the three-year lows set in August.

 

While the last GlobalDairyTrade auction was overshadowed by data showing New Zealand output for the peak month of October falling by 2.6%, and with Australian production extending its decline too, northern hemisphere statistics have proved more upbeat.

 

For September, the latest month for which full data are available, “global milk collections were up overall,” by 0.7%, said Peter Meehan, senior commodity analyst at INTL FCStone.

 

He flagged “strong supplies” from the European Union, where volumes were up 1.0% hear on year, and Argentina and the US, both showing 1.3% growth, “offsetting declines for New Zealand and Australia”.

 

‘Herd no longer contracting’

Meanwhile, in October “Polish production maintained its record-breaking run”, gaining 1.3%, Mr Meehan said, flagging too 1.3% growth in US output as well, to 18.1bn pounds.

 

In the US, “the gains were driven by impressive improvements in milk production per cow”, the Milk Producers Council said, noting that “milk yields increased in all but five states”.

 

Furthermore, “the dairy herd is no longer contracting,” the council said, with the US Department of Agriculture revising up its estimate for the September milk cow herd, now showing a 5,000-head increase month on month, and increase matched in October.

 

At 9.33m head, the US milk cow herd was down 40,000 head from that in October 2018, “but the year-over-year shortfall is narrowing”.

 

Butter vs powder

In Europe, the rising milk supplies are being directed largely at producing more butter, of which the bloc’s output was 3.9% higher year on year in the January-to-September period, far outpacing growth in milk powder volumes.

 

This despite values of skim milk powder - freed of the weight of now-cleared EU intervention stockpiles - continuing their upward run, to reach E2,480 a tonne as of November 24, a five-year high, and up 55% year on year.

 

Prices of whole milk powder (WMP) stood at a two-year high of 3,040 a tonne, up 10.6% year on year.

 

WMP vs SMP

These price performances were reflected at GDT too, where skim milk powder (SMP) values rose by 1.7% to a five-year high of $3,068 a tonne, while whole milk powder – handicapped by its higher fat content – edged 0.3% higher to $3,331 a tonne, its strongest in nearly three years.

 

The discount of skim milk powder to whole milk powder at GDT has now slumped to $263 a tonne, its weakest since July 2016.

 

The discount reached a recent peak of $1,429 a tonne, in April 2018.

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