The damage was done among the higher-priced dairy ingredients, indicating the supply-demand imbalance is widespread and not just confined to powders.
Butter lost value too, down 2.8% to US$2733/tonne. Whole milk powder dropped 0.8% and skim milk powder 2.5%.
Although Fonterra reviewed its processing options continually and changed quickly when indicated, the present product price mix did not appear to contain any more profitable options, AgriHQ dairy analyst Susan Kilsby said.
“The European Commission’s announcement extending aid was very bearish before the GDT auction because it showed lower price signals would be slow getting through to European dairy farmers.
“The EC chooses to make skim milk powder, butter and cheese because their storage life is longer.
“I think whole milk powder might recover soonest because the NZ supply is going down, Europe doesn’t do much of it and China’s demand recovery will be for WMP first.
“Having said that, there are no signs of a market recovery for a while yet.”
After the last GDT, the AgriHQ milk price forecast sat at $4.14/kg.
Westpac Bank economists said GDT auction results were becoming less relevant to the milk price for this season and increasingly important for the first view of next season.
“This week’s out-turn was consistent with our view that WMP prices will bump around near current levels for much of this year before gradually improving.
“Consequently, we remain comfortable with our forecast of $4.60 for the 2016-17 season.”
In the signals coming out of Europe last week Westpac economist Anne Boniface thought she detected a glimmer of hope that low prices were starting to lead to an adjustment in European milk supply.
However, even if that proved to be the case, the prolonged period of low prices probably meant most customers had plenty of product on hand. And the EC stockpiles would need to work through.
ASB Bank rural economist Nathan Penny said the EU support announcement muddied the waters for the NZ dairy industry.
“Over the coming months we expect that any price lift is likely to be modest and often accompanied by a subsequent price fall.”
The outlook for 2016-17 should be one of caution, Penny said.
“While we expect the milk price to end the season at $6/kg, we expect it to start closer to $5/kg.”
Fonterra is not expected to make a prediction about the milk price for 2016-17 until late May but already the market expectation is for an opening around $4 and an advance below $3.
