Global dairy prices reach six-year low, milk powders slump

[WELLINGTON] International dairy prices slumped to a six-year low as demand for milk powder from major buyers, including China, continued to fall with supply expected to grow in the coming months.

The benchmark GlobalDairy Trade (GDT) price index fell 5.9 per cent at fortnightly auctions held on Wednesday by New Zealand dairy exporter Fonterra, posting its eighth consecutive decline and taking average selling prices to US$2,276 per tonne, their weakest since July 2009.

Offered volumes rose from the previous sale, and analysts said that prices would continue to struggle as supply from New Zealand, the world's biggest dairy exporter, picks up with the beginning of the milking season.

"It will be difficult for dairy commodity prices to increase significantly in the coming months as the quantity of milk powder available on GDT will rise with New Zealand's seasonal increase in production," AgriHQ analysts said in a note.

The latest fall was driven by a 10.8 per cent drop in prices for whole milk powder, used in a range of products including milk formula powders and confectionary, which also fell to a six-year trough.

Prices for all products fell, with skim milk powder sliding 5.8 per cent. Cheddar eased 4.9 per cent.

The GDT index has lost 16.2 per cent since the start of the year as prices fell by more than half since 2014.

Global demand for dairy products has also fallen sharply in the past year. Slowing growth in China, the Middle East and some emerging countries has cooled demand for protein from their growing middle classes, while Russian import sanctions and increasing farmer output has ramped up global supply.

The ongoing slide in global dairy prices has prompted Fonterra, the world's largest dairy processor, to forecast a payout price for the current season of NZ$5.25 (S$4.8) per kg of milk solids, well below production costs for many farmers.

The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls nearly a third of the world dairy trade.

REUTERS