A fall of five per cent in the latest Global Dairy Trade index – the largest in 15 months – was not entirely unexpected, according to market analysts.
A big decline in the value of whole milk powder, which dropped US$284 - or 7.3pc - to finish at US $2905 a metric tonne, led the market down.
The auction was held after Fonterra, one of the biggest GDT participants, released May production figures showing its New Zealand milk collection was up seven pc, compared with the same time in 2017.
But while some analysts blamed concerns over global trade, Fresh Agenda director Steve Spencer said it was unlikely trade tensions caused the sharp drop.
“Prices have risen, a lot of buyers have got themselves covered and the other thing to look at is the chart of product available for the coming few events,” Mr Spencer said.
“If people have plenty of product on hand, they see prices rising, they see plenty of product coming in so they sit back.”
He said while the big fall came as a shock, it would also have a sobering effect.
“Global dairy is a trading platform and it needs buyers to turn up, for prices to rise,” Mr Spencer said.
“If the trend continues, and if there is a weakening over the next couple of events, then you could say trade tensions are causing it.”
If the trend continues, and if there’s a weakening over the next couple of events, then you could say trade tensions are causing it.
- Steve Spencer, Fresh Agenda
He said it was too early to call at the moment.
Mr Spencer said an important figure for Australian producers and processors to watch was the price of cheddar, which had experienced a dropped of 4.3pc, to $3713 m/t.
He said the Americans had plenty of cheddar on hand but the market had crashed after China and Mexico announced retaliatory tariffs on American products.
Mexico announced tariffs of up to 25pc on imported cheese, which brought up the price of American imports.
“They (the Americans) are going to start looking for ways to sell it into export markets and some of it will end up here.”
However, Rabobank analyst Mark Harvey described the result as “interesting but not completely unexpected.”
“My read on the result was that it was driven by some key factors,” Mr Harvey said.
“The New Zealand industry had a fairly good finish to their season - after a difficult start.”
He said New Zealand’s national production was marginally higher for the season, while Fonterra's intake was slightly lower.
“But the simple reality is that a strong finish meant there were increasing volumes on offer at the GDT,” Mr Harvey said.
“It’s fair to say a number of buyers have some short-term cover, so buyer demand is more subdued at present.”
Mr Harvey said sentiment remained positive.
“While it's hard to quantify, there is a cloud of bearish sentiment in global markets right now given the trade frictions and news India will be subsidising exports of milk powder to help clear excess stocks.”
