Milk prices see largest drop in two years at global dairy auction

Milk prices have seen their largest drop in two years at the Global Dairy Trade auction.

The average price fell almost five percent overnight to US$3793 (NZ$6685). It followed a near three percent fall at the previous auction almost a month ago.

In a note, New Zealand Exchange dairy analyst Rosalind Crickett said prices continuing to soften across most products was "well and truly expected", coming off the back of abundant supply of dairy products and Fonterra's seasonal rise in volumes on the platform, which was met by weaker demand.

"The excess supply of milk in the market has put natural downward pressure on both milk powders," she said, adding the falls were heavier than anticipated.

She said global milk production in the year-to-date had shown strong growth across all major milk producing regions bar China - which was down 4.6 percent year on year.

Volumes for whole milk and skim milk powders were up almost 20 percent on the equivalent event last year, highlighting how much extra product is available in the market and global inventories on the rise.

The important whole-milk powder price fell 4.4 percent to US$3425 (NZ$6034). Skim milk powder fell seven percent, while anhydrous milk fat was down almost four percent, butter fell five percent, and cheddar dropped over 12 percent.

Looking ahead, Crickett said recent market developments on the global milk production scene showed early indications that the year on year production growth trajectory was starting to change.

"Heatwaves across Europe have proved as a hindrance to productivity most notably in France and Belgium with some heat-stress related dairy cattle fatalities also reported in Jersey.

"The announcement of El Niño conditions arriving in the tropical Pacific last week could further add to the production output decreases in the months to come."