The Global Dairy Trade price index dropped 8.5% to 1379 at the bimonthly auction overnight. That’s the biggest fall since August 4, 2015, when the index shed 9.3%.
The drop comes after steep rises in dairy prices this year, pushing the index to record levels, as tight supply underpins demand. Recent auctions have been impacted by supply chain disruptions due to Covid-19 lockdowns in China, but analysts say the latest result suggests buyers may be baulking at high prices.
“The result will be a bit of a shock to many – while a further fall was expected, the magnitude wasn’t,” said NZX senior analyst Amy Castleton. “It seems buyers have finally had enough of paying high dairy commodity prices.”
The average price for whole milk powder, which accounted for more than half the auction volume, fell 6.5% to a four-month low of US$3916 (NZ$5967) a tonne, the biggest drop since March last year.
Fonterra factors in fat and protein levels in milk when buying it off farmers.
Castleton said the decline was largely driven by regions outside of North Asia “who seem to have decided they didn’t want to pay the high prices any longer”.
Skim milk powder fell 6.5% to US$4130/t, anhydrous milkfat slumped 12.1% to US$6008/t, butter dropped 12.5% per cent to US$5807/t, cheddar slid 8.6% US$5652/t and buttermilk powder dropped for the first time since November, down 6.1% to US$4203/t.
Global dairy prices are important for determining the milk price companies pay farmers. The dairy season runs until the end of May, with production generally peaking around November.
The country’s largest dairy company, Fonterra, sets the benchmark for milk prices and Fonterra chief executive Miles Hurrell said in March that the company was “very comfortable at this point in time” with its milk price forecast for this season.
In February, Fonterra raised its forecast milk payment to farmers for this season for a fourth time to between $9.30 and $9.90 per kilogram of milk solids. The $9.60 per kgMS midpoint, which farmers are paid off, is the highest since Fonterra was formed in 2001.