Dairy Prices Fall as New Zealand Production Shows Signs of Recovery

Global dairy prices dropped for a fourth consecutive time at a fortnightly auction on Wednesday as production in New Zealand showed signs of a potential turnaround after weak levels earlier in the season.

The world's largest dairy exporter curbed its supply late last year due to unusually dry weather.

Leading company Fonterra Co-operative Group Ltd reported on Tuesday a 2 percent drop in New Zealand output volume in February, compared with a 5 percent fall in January.

The Global Dairy Trade Price Index dipped 0.6 percent, with an average selling price of $3,477 per tonne, in the auction held at midnight, New Zealand time. The index fell 1.2 percent at the previous sale.

A total of 17,222 tons was sold at the latest auction, falling 7.6 percent from the previous one. The auctions are held twice a month, with the next scheduled for April 17.

"While (New Zealand) production is improving, the recovery from weak production earlier in the season is progressing only gradually," Nathan Penny, senior rural economist at ASB, said in a note, adding he expected steady prices for the rest of the season.

The New Zealand dollar edged higher to $0.7256, as some in the market expected a deeper drop in dairy prices. The dairy sector generates more than 7 percent of New Zealand's gross domestic product.

The New Zealand milk co-operative, which is owned by about 10,500 farmers, controls nearly a third of the world dairy trade.

GDT Events is owned by New Zealand's Fonterra Co-operative Group Ltd , but operates independently from the dairy company. 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.