Last night the GlobalDairyTrade auction gave more prices drops. Stuff reports
Dairy prices have resumed their slide, falling 4.9 per cent at the latest GlobalDairyTrade auction overnight.
The drop, the second-biggest of the year after an 8.9 per cent plunge at the April 1 auction, was the ninth fall out of the last 10 auctions, the only increase being at the previous auction two weeks ago when prices edged up by 0.9 per cent.
The average winning price at the latest auction was US$3595 per metric tonne, down 28.7 per cent from the recent peak of US$5042 on February 4. The auction platform’s trade-weighted price index was down by an almost identical percentage.
Prices were put under pressure by a big increase in supply, with a maximum supply of 43,249 tonnes, up almost 33 per cent from the previous auction, with 41,513 tonnes sold.
Whole milk powder, the biggest category by volume, drove much of the overall decline with a 5.4 per cent drop in price.
The problem for NZ was that the rise in production probably largely wasn’t from NZ. If we go back to the comments on the 19th of last month
ASB rural economist Nathan Penny said markets were starting to take note of the more modest milk production outlook for next season.
“At the end of last month, Fonterra forecast 2014/15 season milk production growth of 2 per cent compared to the season just gone,” he said.
“In comparison, Fonterra reported that milk solids production for the completed season was up 8.3 per cent on the season prior.”
As can be seen from the price index. We get quite a lot of variation in the overall pricing for dairy products. NZ are essentially filling in for whatever requirements exist over countries domestic or regional dairy production. We are literally filling in the few percent that are not covered by local or regional production. To give you an idea about how dominant we are in the international trade, see this pie chart from the Dutch Dairy Board in 2011. Then we were exporting as much as the whole of the European Union.
Since 2008, NZ has massively increased its production of whole milk powder. The new production has largely gone to the massive new opening market of China.
However China is a country that is incrementally improving both quality and production for its domestic economy
And of course we are not the only possible supplier. Other countries have been gearing up to take part of that trade as well. This has been leading to an overall increase in the amount of whole milk powder available for export.
Despite the blithe words of National and some rather silly bank economists. I’d say that the dairy boom is slowing and possibly over. Expect steadily falling export prices for a number of years.
In the meantime, under National in its usual short term boom mode, much of the rest of our export tech and manufacturing economy has been stagnating. Once you strip the processing of dairy from our manufacturing sector, what you see is the continued decline of capacity. This feeds into the capacity of other areas like IT exports, which in NZ are often exporting hardware with software.