Butter pulls Global Dairy Trade into the red

Auction Day 283 of the GDT yielded an average price of US$4.162 per tonne. This resulted in a decline of 0,7% in the GDT Price Index. This is the second decline in a row after the minimal reduction of 0,1% on the previous auction day. And yet the total volume sold, at 22.020 tonnes, was approximately 12% lower than on the previous auction day. However, that was not enough to keep the GDT above the red line.

Fonterra had significantly scaled down the range of whole and skimmed milk powder, which together account for approximately three quarters of the volume offered at the GDT. Whole milk powder, which accounts for two-thirds of the volume of the GDT, was almost 18% less offered, and skimmed milk powder was almost 23% less. This had a supportive effect on the prices of these protein products.

Price increases canceled out
The average price of whole milk powder rose 0,7% to $4.115 per tonne, while skimmed milk powder increased in value by 2% to an average of $3.433 per tonne. The very modestly offered buttermilk powder also managed to rise in price: by 14,4% to $4.222 per tonne. However, these price increases were offset by the effects on the fat side in the so-called product mix that Fonterra puts together for the GDT.

Butter, butter concentrate (AMF) and cheddar only account for just under 20% of the volume offered at the GDT. The DCA quotation of butter in Northwestern Europe has been under pressure for some time and butter is also looking down on the New Zealand futures market. However, the supply of butter, AMF and cheddar last auction day was relatively much higher than the previous edition on April 20. For example, more than 18% more of AMF and 32% more of butter were offered. 

Not taking a clear position
This was not without consequences: the average price of butter on the GDT fell by more than 12% to $5.035 per tonne, while AMF lost an average of more than 4% in value to reach $5.730. Cheddar prices fell 4,5% to $4.274 per tonne. Combined with the slight decrease in the very limited supply of lactose (-2% to $5.730), this was enough to send the GDT Price Index into negative territory.

However, the modest decline of -0,7 is insufficient to clearly state that the direction of the dairy market has been determined. Buyers worldwide remain cautious, closely monitoring the effects of the corona pandemic. Relaxation of restrictions in major sales areas, so that terraces can open again and the catering industry can regain space, can lead to new impulses.

New Zealand will soon enter the winter period, which will cause a sharp seasonal decline in milk production. So far, milk production in New Zealand, encouraged by higher prices, is significantly higher than in the last 2 years. In northwestern Europe, on the other hand, milk production has again been controlled due to the relatively cool spring. In short, it seems that the dairy market is mainly waiting for incentives on the demand side before making a clear choice of direction.