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Dairy prices rise again at GDT, taking 2018 gains to 13.5%

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Prices at GlobalDairyTrade rose at their fastest in 15 months, after dairy giant Fonterra again cut volumes sold through the auction, in the face of volatile weather in New Zealand, the top milk exporting country.


The GlobalDairyTrade index gained 5.9% at Tuesday’s event - the biggest rise for any auction since November 2016, and taking gains for 2018 so far to 13.5%.


The latest increase followed a caution by Auckland-based Fonterra – which runs the auction, and processes the vast majority of New Zealand milk output – that it was further reducing the volume of product sold through GlobalDairyTrade (GDT) because of “the impact of dry weather on milk flows”.


The co-operative cut by 2,750 tonnes the amount of skim milk powder it was offering through the auction, and by 1,000 tonnes the volume of butter, although raising by 3,450 tonnes sales of anhydrous milk fat in response to “strong market demand”.


Signally, anhydrous milk fat price rose by only 0.5% at Tuesday’s event, compared with a 7.2% rise in values of skim milk powder, and 7.6% in butter prices – which have now rebounded 17.9% so far in 2018.


Rains return


Fonterra added in its pre-auction statement that it “will continue to keep a close eye on the effect of weather conditions on milk collections”.


In fact, some parts of New Zealand have seen heavy rains, with Tobin Gorey at Commonwealth Bank of Australia reporting on Monday that some dairy producing regions “have received around 3-4 inches of rain in less than week.


“The rainfall will boost soil moisture, particularly in the formerly dry southern region,” although “some milk has been lost due to the storms”.


NZX futures reacted little to the storm, with March whole milk powder futures closing on Monday at $3,230 per tonne, up 0.2% for the session, although up 6.6% since the previous GDT, in mid-January.


At Tuesday’s auction, GDT prices gained 7.6% to reach an average price of $3,226 per tonne, an eight-month high.


‘Risking severe pressure’


Milk output in Australia is also seen being curtailed by dry weather, with Mr Gorey saying that “weather models are still not projecting any significant rainfall in western Victoria’s dairy region”.


And in the European Union, where milk prices have been on the slide, calls for restraint by co-operatives such as Dutch-based FrieslandCampina, producers’ groups such as the UK’s NFU and by European Agriculture Commissioner Phil Hogan has raised hopes of a cap on volume growth – as have curbs on intervention buying of skim milk powder.


The European Union last week mothballed its skim milk powder intervention buying scheme, which had led to the formation of stocks of nearly 400,000 tonnes of the product, “thereby risking severe pressure on the market, with a negative impact on dairy prices.


“In order to avoid a drop in prices and a consequent worsening of farmers’ standards of living,” the EU said it had decided “to forego the automatic buying-in of skim milk powder”.

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