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Milk prices fall at GDT, defying headway in futures markets

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Dairy prices extended their losing streak at GlobalDairyTrade to the longest in two years, defying signs of recovery in many markets, after data showed a revival in milk output in top exporter New Zealand.


Dairy values, as measured by the GlobalDairyTrade (GDT) index, dropped for a fourth successive auction, this time by 3.4%, to record their weakest finish in eight months.


The index, which came in at 969, also showed a year-on-year decline for the first time since May last year, when values were amid a rebound to a peak of 1,096 eventually reached five months ago.


And the decline reflected drops in values paid for all products traded bar anhydrous milk fat, the price of which came in unchanged at $6,887 a tonne.


Futures vs GDT prices


The price drop defied gains in some other markets, with the fall of 5.9% to $5,144 a tonne in GDT butter values, for instance, contrasting with a 1.5% gain in spot December futures on Europe’s EEX exchange.


Latest European Commission data show a sharp recovery, of 3.6% to E530 per 100 kilogrammes, in European Union cash prices in the week to November 12.


Meanwhile, in New Zealand itself, values of whole milk powder futures as traded on the NZX exchange had suggested “hefty gains” at Tuesday’s auction, said Tobin Gorey at Commonwealth Bank of Australia.


“Futures prices are at premium of 3% or so to the last auction.”


Output growth


However, values of whole milk powder, by far the main product by volume traded at GDT, dropped by 2.7% at Tuesday’s event to a 13-month low of $2,778 a tonne.


The price falls followed the announcement earlier in the day by Fonterra, which processes the vast majority of New Zealand’s milk output, that its collections had returned to year-on-year growth in October - a key month, in bringing the seasonal high in the country’s production.


The improvement came “as weather conditions improved towards the latter part of the month”, said Fonterra, which collected 208.8m kilogrammes of milk solids for October, a rise of 2.3% year on year.


Fonterra’s collections so far in 2017-18, which began in June, are now running 0.3% above the year-ago level, recovering from a 1.1% decline reported as of September.


‘Biggest increase in 18 months’


Separately, the European Union also reported data showing a rise in on milk collections, although for September, when the rate of increase was reported at 3.7%.


“This is the biggest… increase in 18 months,” the commission said, although the pace of growth was actually smaller than figures of 4-5% circulating in the market ahead of the data.


Germany, France and Ireland between them accounted for some 209,000 tonnes of the 439,000-tonne increase reported for the month, compared with volumes for September 2016.


Total milk output for the first nine months of 2017 is now seen running 0.4% ahead of that a year before.


Dairy product output


Nonetheless, output of butter is running 3.5% below year ago levels, sapped by the weak prices of co-product skim milk powder, values of which are being weighed by the huge EU stocks built up through intervention buying.


Whole milk powder production is largely flat for the January-to-September period, while EU cheese output is up 1.3%.

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