With many dairy market trends tending downwards, it was no surprise when the Global Dairy Trade Price Index dropped by 3.5% on Tuesday, writes Stephen Cadogan.
Prices fell despite weak milk production in New Zealand, the No 1 dairy product exporter.
The price for New Zealand’s main product, whole milk powder, slumped 5.5%, despite New Zealand’s September milk collections falling 1.6% behind last year’s figures, to their lowest total for the month since 2012. This is due to the country’s cold, wet winter, and a wet spring.
Market analysts suspect that Chinese buying of milk powder drying up for the time being was a factor in the Global Dairy Trade Price Index falling to a seven-month low, its third consecutive fall, and the largest since January, when the first GDT auction of the year dropped by 3.9%.
Meanwhile, butter prices have been falling from this year’s record highs, with the EU price falling a further 4.3% in the last week of October, bringing to 14% the price fall from a mid-September high.
And prices of skim milk powder in the EU have continued to fall, partly blamed on the EU’s huge intervention store of powder depressing the market. However, the skim price in Tuesday’s Global Dairy Trade auction gained 1.2%.
Global dairy market weakness comes at a bad time for European Commissioner for Agriculture and Rural Development Phil Hogan, who warned at last week’s IDF World Dairy Summit in Belfast that the significant skim milk powder stocks accumulated during the crisis years 2015 and 2016 must be addressed.
“While this public intervention had an undeniable market stabilisation impact, the very existence of those public stocks is weighing on the market.
“I also believe we must avoid new buying-in under public intervention next year, without due market justification,” said the Commissioner.
Futures prices have fallen due to expectations that when the EU’s intervention buying re-opens in March 2018, it will not put a floor under the market.
EU milk deliveries grew 3% in August, the third monthly increase in a row, and Mr Hogan warned farmers to “keep their heads cool and not over-react to increased milk prices”.
“Nobody wants to go through a difficult oversupply situation again next year, “ said Mr Hogan.
Ireland, Poland and Italy lead the milk increases, but growth is also now happening in bigger producers such as Germany, France and the Netherlands.
The EU’s third largest producer, the UK, is heading towards a 2% increase in milk production this year so far.
In a bit of better news for global dairy markets, annualised milk growth has slowed to 1% in the US, compared to 2% in recent years.