International dairy prices fell to a five-year low at GlobalDairyTrade, dashing hopes of a recovery, even as industry officials called time on the resilience in US prices, which has lifted industry margins to a record high.
Prices at GlobalDairyTrade, the benchmark auction run by New Zealand-based Fonterra, fell by 3.1% to their lowest since August 2009.
The decline reflected drops of more than 5% in values of both whole milk powder, which represents the bulk of volumes sold at the auction, and of skim milk powder – declines which more than offset increases of 5.0% in cheddar, 6.0% in butter and 6.1% in anhydrous milk fat.
Whole milk powder values, at $2,400 a tonne, have now more than halved this year, reaching their lowest since September 2009, with skim milk powder values sliding 55%.
Both – favourite purchases of Chinese importers, whose retreat to running down stockpiles is a key factor in this year’s drop in dairy prices – have underperformed the average decline in values this year, with anhydrous milk fat prices, for instance, down a more modest 38%, and butter by 30%.
Futures curve signals
The decline dashed hopes from some observers that a fall of 0.3% in prices at the previous auction, on November 4, and a 1.4% rise at the October 15 event, had signalled an end to this year’s drop in prices.
The November 4 result had “teased with signs of the price stability that the market has been searching for”, Dairy Australia analyst Glen Fisher said.
The futures curve for skim milk powder was, in offering $2,822 a tonne for May 2015 delivery, compared with an average of $2,822 a tonne, “looking more positive”, with forward pricing for milk fat and butter also hinting at “improved prospects in 2015”, Mr Fisher said.
In fact, May contracts for both whole and skim milk powder continued their outperformance at Tuesday’s auction, in showing relatively small declines and increasing their premiums to nearer-term lots.
Separately on Tuesday, a report from the US-based Dairy Management and National Milk Producers’ Federation groups downplayed ideas of world dairy values recovering sooner.
“World demand is expected to remain below normal, and world dairy prices depressed, until mid-2015, while milk production growth accelerates for the major dairy exporters,” the briefing said.
Against this backdrop, and with domestic production increasing, US prices – which have defied the global downturn for much the year, underpinned by modest milk production growth – are poised to extend their decline from record levels reached in September-October in the cash market.
“Lower domestic milk prices are inevitable,” the report said, adding that “dairy futures indicate that prices will rapidly exit [record] territory and continue down until well into 2015”.
Futures indicate that US industry margins “will be considerably lower in 2015” too, after hitting a record high of $16.32 per hundredweight of milk last month, the briefing said.
While prices of many dairy products, such as bitter and cheese, fell back last month, values of the feed ingredients such as soymeal and alfalfa fell even further – on the cash market, as a monthly average.
The margin in September was $15.40 per hundredweight of milk, and in October 2013 $10.03 per hundredweight of milk.