Latest Global Dairy Trade auction sees significant dips, forcing companies to reconsider new season payouts.
The global dairy market is experiencing renewed downward pressure, with another substantial drop in prices expected to prompt dairy processors to re-evaluate their milk price forecasts for the upcoming season. At the most recent Global Dairy Trade (GDT) auction, most products saw declines as escalating supply, buoyed by peak production in the Northern Hemisphere, outpaced demand. This marks the third auction of the new dairy season and the fourth consecutive event where the average price has fallen, signaling a challenging start for dairy economics.
Wednesday’s auction recorded the largest drop yet, with the GDT index decreasing by 4.1% to US7,011) per metric tonne. Whole Milk Powder (WMP), which holds the most significant influence on farmgate payouts, took the hardest hit, falling 5.1% to US4,000 mark all calendar year. While it’s now 11% below its early May peak of US3,218/MT seen this time last year and its five-year low of US$2,548/MT two years ago when milk prices crashed. Over 25,700 metric tonnes were sold, a 69% increase from the previous auction.
This price softening coincides with peak milk production in the Northern Hemisphere. The European Union’s production, which faced pressure earlier this year, saw a 0.7% increase in April, largely driven by a 12.6% rise in Ireland. Similarly, the United States’ production was up 1.6% compared to the same period last year. Adding to the supply surge, New Zealand recorded its highest-ever production for May, an 8% increase, marking the final month of its dairy season.
Despite the declines, the general consensus among analysts suggests that while milk price forecasts will likely soften due to WMP’s over 10% fall, any cuts won’t be as severe as those experienced in 2023. NZ milk price futures were trading at $9.70/kgMS on Wednesday afternoon, and the NZX Milk Price Calculator indicated a $10.13/kgMS milk price based on the GDT result and the NZ dollar at 61 US cents. North Asia was the top buying region, accounting for 41% of product sold.
Industry experts like Highground Dairy’s Stu Davison believe the latest WMP decline isn’t enough to significantly shift current $10/kgMS price forecasts, but a subsequent large drop could force a revision. Fonterra opened its current season with a $10/kgMS price, within a wide range of $8-$11/kgMS, flagging geopolitical uncertainty and potential varied outcomes. Fonterra’s COO Anna Palairet noted the GDT result was in line with expectations and too early to definitively change forecasts. Open Country Dairy’s Mark de Lautour expects full-year forecasts to soften slightly given the past four auctions’ results, while Jarden’s Mike McIntyre emphasizes the need to watch if North Asian buyers genuinely want higher volumes in a falling market.
Source: BusinessDesk: Continued downward pressure could force dairy processors to rethink forecasts
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