Dairy prices slumped 7.4% at the August 16 Global Dairy Trade, led by an almost 11% nosedive in whole milk powder to US$2548 a tonne, its lowest point since 2016.
Skim milk powder (SMP) fell by 5.2% to $2333 a tonne, as did butterfat, with the butter index dropping 3% to US$4539/t. Anhydrous milk fat (AMF) took 5.3% knock, falling to US$4452/t.
The only positive to come out of the fortnightly auction is the cheese price, which rose by almost 6% to US$4127/t.
The GDT price index is calculated on the total quantity sold in a trade event across all products, contract periods and sellers, which means still more downward pressure will come on Fonterra’s latest farmgate milk price range – the midpoint currently $7.00 a kilogram of milksolids, while most farmers’ break-even is considered to be around $8.00/kg.
Rabobank said the challenge right now with the seasonal production curve is that more dairy is being added to the GDT in the face of weak demand.
“As highlighted in our previous commentary, China’s rebalancing of excess supply and inventory over weak demand will result in less GDT demand tension and therefore lower prices,” RaboResearch senior agricultural analyst Emma Higgins said.
She said milk supply is tightening up in the northern hemisphere. United States June milk production was flat versus the year before, bringing an end to an 11-month year-on-year growth streak.
The decline was a key driver in moving total US output to flat in June.
Meanwhile European Union June milk flows for the region were barely ahead by just 0.2% year on year (YOY), with production in some parts hampered by hot weather.
Higgins said the market will be watching New Zealand milk production. Influenced by weather events, production for June was lower by 1.8% YOY – but there are small volumes at this time of year.
“Weather has been a mixed bag for July, with sodden soil still plaguing some areas. August production is likely to be higher YOY – if only based on weak comparables from last year,” she said.
“However, still half a month to go and the past few years have shown we can’t get complacent at this point when it comes to fickle weather … lucky there is still a lot of runway ahead for the current 2023-24 season.”