Rabobank flags rising global dairy prices, warns of downside risks ahead
While global dairy commodity prices continue to climb in most key exporting countries, the second half of the year is expected to bring increased downside risks.
Before the auction the prices had been expected to fall.
The average sale-price index was down by 1.2% (to an average sale price of US$3481/tonne) and follows a fall at the previous event.
The whole milk powder (WMP) index was down 1%, average price US$3189/t, while the butter index was up 0.8%, average price US$5611/t.
“Fonterra had lifted its offer volumes of skim milk powder (SMP) ahead of this event with an extra 200t on offer, and volumes increased over the next 12 months by 6000t.
“Both SMP and WMP prices eased slightly. Butter prices held steady but Oceania prices continue to trade at a discount to European wholesale prices, meanwhile cheddar prices saw the largest declines -- falling 3.6%.
“This is a quiet period with New Zealand milk production largely on hold until August, so another muted auction event is not unusual for this time of year.”
NZ milk production numbers for May 2018 were released last week.
The data confirmed a strong finish to the season with 6.2% growth year-on-year in volume (up 5.7% in May on a milk solids basis) versus the prior year.
“This brings the 2017-18 season into line with the prior year: production is up 0.1% [in tonnes, but on a milk solids basis full-season production is down 0.6%],” says Higgins.
ASB’s senior rural economist Nathan Penny says they suspect the price weakness was driven by a late season rally in production and a stronger US dollar. The US dollar index lifted about 1% since the last auction, making dairy more expensive in most buyers’ local currency terms.
ASB is maintaining its 2018-19 milk price forecast at $6.50/kgMS.
