Westpac senior economist Michael Gordon said the 0.4% fall in the GDT price index was probably the best outcome that could have been hoped for.
“Although the United Kingdom and EU are relatively small markets for our dairy products, global uncertainty does tend to weigh on commodity prices, which could depress returns in the short term,” he said.
ASB rural economist Nathan Penny said the modest auction fall reassured market watchers the initial Brexit fallout in terms of dairy prices would be modest and temporary.
Milk production in New Zealand, Australia and the EU was falling but weaker economic growth in the EU could cause a bigger EU surplus and greater supply pressure on world markets.
“If dairy buyers sit on their hands and wait for the Brexit dust to settle, achieving our milk price forecast becomes increasingly difficult with each passing dairy auction.”
But Penny stuck to his prediction of $6/kg at the farmgate for the outcome of the new season.
ASB is higher than most other analysts – for example the AgriHQ milk price indicator fell 21c to $4.54 after the GDT auction.
More worryingly for dairy farmers, the snapshot price (if all the season’s production was sold at the latest GDT price) also fell 21c to $3.70.
That also showed just how much expectation of improving prices throughout the season was incorporated in mostly modest predictions between $4.50 and $5.
AgriHQ dairy analyst Susan Kilsby drew attention to the regular grade whole milk powder (WMP) price for September delivery on the GDT at US$2000/tonne, plus a flat price curve for deliveries in later months.
“WMP prices have trended down for the past four GDT events while skim milk powder (SMP) prices have risen, effectively wiping out the WMP premium.
“SMP prices are being underpinned by the EU intervention and that is soaking up the excess SMP being produced in Europe, which has tightened the global supply.
“However, no such programme operates for WMP meaning the price of this commodity is dictated solely by the market.”
Just before the GDT auction the EU announced an increase in SMP intervention from 218,000 tonnes to 350,000, at which level it was beginning to resemble the total annual sales of NZ SMP.
The eventual disposal of those intervention stocks would depress world markets for SMP for some time, analysts said.
The GDT offering of WMP was 16,250 tonnes – 56% more than at the previous auction.
“The drop in price indicates that demand is not currently strong enough to absorb the higher volumes without some price correction occurring.
“Offer volumes are forecast to continue to rise in the coming months, peaking in September.
“Global demand for milk powder remains subdued as most buyers have sufficient stocks on hand to meet their immediate requirements and therefore have little urgency to buy right now.”
