Fonterra has a hand in declining Global Dairy Trade

The average price on today's auction day is US$4.089 per tonne, a decrease of 3,8% compared to the previous auction day. This can largely be attributed to whole milk powder. The price of whole milk powder fell 6,2% to $4.083 per tonne. The downward trend is not unexpected, because Fonterra has significantly increased the supply of whole milk powder for this auction day 280.

The New Zealand dairy giant offered 18.385 tonnes of whole milk powder, 3.500 tonnes more than the previous auction day. In other words, a plus of 23,5%. The supply of skimmed milk powder also increased slightly by almost 4% to just over 5.500 tons. In a statement, Fonterra said that the dairy group has adjusted production planning to meet market demand. In other words, the company has scaled up the production of milk powder compared to other dairy products. The company is supported by milk production in recent months, which is at the highest level since 2017.

Seasonal decline normal
This was also clearly visible in the offer at the GDT. Whole milk powder (68%) and skimmed milk powder (20,5%) were responsible for almost 90% of the supply on auction day. In addition, butter (almost 5%) and milk fat (AMF) were offered in small quantities, but no buttermilk powder (BMP) and whey powder, a modest batch of Cheddar that was traded for a slightly lower price (-0,7%) and a batch of Lactose that was sold for an 8,6% higher price. The total supply therefore increased by more than 10% to 26.895 tons. And this in a period when the supply on the GDT always decreases seasonally.

The additional supply also led to a decrease in the whole milk powder price by 6,2%. The price of butter also fell 2,8% despite a stable supply, to an average price of $5.659 per tonne. Despite the higher supply, skimmed milk powder remained afloat and even rose slightly in price, by 0,7% to $3.350 per tonne. AMF also rose in price: by 3,7% to $6.155 per tonne.

Higher forecast price
With the average price correction of -3,8%, the boom in the dairy market seems to have calmed down for a while. The question is whether Fonterra is really unhappy about this. Last week, the dairy giant once again announced the forecast price, the so-called Farm Milk Price. increased for this current milking season. CEO Mike Hurrell indicated at an earlier stage that he welcomed the higher dairy prices, but that the consequence is that Fonterra increasingly has difficulty translating these increases into sales prices on the market. 

Underlying, the export of milk powder in particular to China continues to run smoothly, although successive price increases on the GDT have led to the United States and Europe becoming a lot more competitive on the world market. It is therefore difficult to predict which course the dairy market will take in the coming weeks. The corona measures or lockdowns in various countries also play a role here.