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Dairy product prices drop as supply concern eases

Dairy product prices dropped in the latest GlobalDairyTrade auction amid expectations that the supply of milk powder will not be as constrained as previously thought.

The GDT average winning price dropped 8.8 percent to US$3,136, from US$3,374 at the previous auction two weeks ago. Some 20,258 tonnes of product was sold, down from 22,957 tonnes two weeks ago.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season dropped by 16 cents per kilogram milksolids to $4.60/kgMS following the GDT auction. This is comparable with Fonterra's $4.70/kgMS forecast.

Ahead of the auction Fonterra increased the volume of whole milk powder to be sold on GDT, according to AgriHQ dairy analyst Susan Kilsby. This is the second time this month that Fonterra has revised up its GDT forecast offerings after initially pulling volume off GDT in late January as dry conditions began to impede milk production.

"The extra product available on GDT means buyers no longer sense that a shortage of milk powder will occur this season despite Fonterra holding its milk production forecast for the 2014-15 season at -3.3 percent," Kilsby said in a note.

She added that the just-over 20,000 tonnes of product traded during the latest GDT auction was 48 percent less than at the same auction a year ago.

Rennet casein sank 15.2 percent to US$7,507 a tonne, while butter milk powder dropped 11.6 percent to US$2,635 a tonne, and whole milk powder fell 9.6 percent to US$2,928 a tonne.

Butter slid 9.4 percent to US$3,555 a tonne, anhydrous milk fat declined 8.4 percent to US$3,877 a tonne, while cheddar retreated 7.4 percent to US$3,130 a tonne

Skim milk powder weakened 5.5 percent to US$2,731 a tonne.

Lactose was not offered at the latest event.

Sweet whey powder was not offered, not sold, or sold at its starting price in either the current event and/or in the prior two events.

The New Zealand dollar last traded 0.8 percent lower at 73.13 US cents at about 12:13pm in New York, compared with 73.70 US cents at 5pm in Wellington on Tuesday.

There were 110 winning bidders out of 134 participating bidders at the 12-round auction. The number of qualified bidders fell to 667, down from 703 at the last auction.