Global dairy prices rise in latest GDT auction, stays below market consensus

Global dairy prices rose for the fourth consecutive GlobalDairyTrade (GDT) auction, driven mostly by double digit gains in whole milk powder and butter milk powder and remained below market expectations.

Overall, the GDT price index gained 1.7 percent since the last sale. Further, whole milk powder prices, which have the biggest bearing on Fonterra's farm gate milk price, fell fractionally to USD2975 a tonne. Dairy farmers are estimated to need an average of USD3000 to break even.

Further, global dairy prices have risen nearly 17 percent in four weeks, an encouraging sign for a sector weighed down globally by low prices and growing stockpiles of cheese and milk powder. Whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price forecast, eased by 0.2 per cent to USD2782 a tonne, ending a firming trend that started in early July.

The volume of produce sold at the auction fell nearly 5 percent, and the weaker production has helped underpin prices. Dairy prices have risen nearly 32 percent since August, and are at their highest level since March 2015.

"Milk production in key dairying regions globally is reducing in response to low milk prices. Milk production in the European Union for 2016 is beginning to flatten out and our New Zealand milk collection is currently more than 3 percent lower than last season," said John Wilson, Chairman, Fonterra.

According to Julia Jones of KPMG, the four consecutive auction increases pointed to the global market getting back into balance, with overproduction falling, demand improving and stockpiles falling.

Meanwhile, among the other gains, butter prices were up by 3.6 per ent to an average price of USD3,892/tonne, cheddar by 2.2 percent to USD3,518/tonne, lactose by 3.7 percent to USD815/tonne and rennet casein by 2.0 percent to USD6,893/tonne.