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Dairy prices tumble to 14-month low, amid signs of buoyant milk output

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Dairy prices fell to a 14-month low at GlobalDairyTrade auction, defying strength in whole milk powder futures, as prices felt pressure from raised sales volumes, and buoyant milk output signs.


The GlobalDairyTrade index dropped 3.9% at Tuesday’s auction, the last of 2017, to 935 points, its lowest since October last year.


The decline, which meant the index finished down 13.1% for the year, defied indications from New Zealand’s NZX market of higher prices.


Best-traded whole milk powder futures for March closing earlier on Tuesday at $2,990 a tonne, up 2.7% since the previous GlobalDairyTrade auction, two weeks ago, after a rally spurred by worries over dryness in major producing regions in New Zealand, the top milk-exporting country.


Skim milk, milk fat price tumbles


However, data this week from Dcanz, the New Zealand dairy industry group, revealed domestic milk output up 3.3% last month at 242.6m kilogrammes of milk solids.


Fonterra, the Auckland-based dairy giant which runs GlobalDairyTrade, ahead of Tuesday raised by more than 10,000 tonnes, to 643,000 tonnes, its forecast for product volumes it intended to sell through the event over the next 12 months.


“This change reflects an increase of 6,000 tonnes for skim milk powder and 4,180 tonnes for anhydrous milk fat,” Fonterra said, flagging “strong market demand” for both products.


Nonetheless, skim milk powder prices fell by 4.8% at the auction to a 19-month low, while anhydrous milk fat values by 6.7%.


Prices of whole milk powder, which accounts for the bulk of volumes sold through GDT dipped by 2.5%.


‘Bursting with powder’


Values of anhydrous milk fat remain up 19.1% for 2017 despite Tuesday’s setback – contrasting with a 36% slump in GlobalDairyTrade prices of skim milk powder.


Skim milk powder prices have felt particular pressure from larger-than-expected output in the European Union, the top producer and exporter of the commodity, where production has been supported by a European Commission intervention scheme buying which has created a stocks mountain of some 400,000 tonnes.


The EU’s “substantial” skim milk powder inventories “will continue to weigh on global skim milk powder markets”, the US Department of Agriculture said in a briefing on Friday.


In the US itself, prices of Chicago-traded non-fat dry milk futures have continued to underperform, with December futures last week touching spot 72.63 cents per pound, a record low for a spot contract.


“Warehouses in the US and Europe are bursting with powder, and driers are running hard for the holidays,” the US-based Milk Producers Council said.


‘Continued sharp correction’


Butter values fared a little better at GlobalDairyTrade, in falling by 2.3% to $4,474 a tonne, to leave the commodity with gains of 4.3% for 2017 as a whole.


The relative resilience defied a caution from the USDA that “for 2018, the price outlook points to a continued sharp correction in butter prices,” although the department did add that “strong consumer demand should keep prices from dropping far below $4,000 a tonne”.


Indeed, the USDA said that “given the dismal outlook” for the market for skim milk powder, manufactured as a co-product of butter output, “it appears that processors are unwilling to churn more butter at the risk of carrying burdensome supplies of co-products”.

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