Dairy Prices Edge Down as Supply Outlook Stronger Than Expected

Reversing previous signs of recovery global dairy prices fell 1.1 percent with whole milk powder leading losses. ( Wyatt Bechtel )

Global dairy prices fell at a fortnightly auction held early on Wednesday, reversing a jump in the previous auction and casting doubt over an imminent recovery.

The GDT Price Index dipped 1.1 percent, with an average selling price of $3,465 per ton, in the early hours of Wednesday morning.

The index had risen 2.7 pct at the previous sale, snapping four consecutive auctions of falls and leading to hopes that prices would bounce back after struggling in recent months.

Whole milk powder (WMP) led losses, with prices falling 1.5 percent, a result at odds with futures markets which had suggested a jump of around 3 percent.

That was in part due to New Zealand dairy giant Fonterra's announcement the previous day that it was expecting a 2 percent drop in milk this season, a more robust result than previously signaled as bad weather conditions eased up.

"An indication of a little more product than previously expected being available before the end of the season may have meant buyers were less willing to pay more to secure WMP at this event," said AgriHQ analyst Amy Castleton in a research note.

The auction results can affect the New Zealand dollar as the dairy sector generates more than 7 percent of the nation's gross domestic product.

The currency sank to a five-month low of $0.6988 overnight in part due to the auction results as well as strength in the U.S. dollar. The kiwi last stood at $0.7004.

A total of 19,508 tons was sold at the latest auction, an increase of 1.3 percent from the previous one, the auction platform said on its website.

GDT Events is owned by Fonterra Co-operative Group Ltd but operates independently from the dairy giant.

U.S.-listed CRA International Inc is the trading manager for the twice-monthly Global Dairy Trade auction.

A number of companies, including Dairy America and Murray Goulburn , use the platform to sell milk powder and other dairy products.

The next auction is scheduled for May 15.