September 1, 2015 / 9:50 PM / 2 years ago

Dairy prices add to recovery; auction volumes stay low

WELLINGTON (Reuters) - Global dairy prices rose to a 2-1/2-month high as tightening supplies in Tuesday’s auction prompted more buying, lifting prices further away from a 12-1/2-year low hit last month.

The benchmark GlobalDairy Trade (GDT) price index climbed 10.9 percent at fortnightly auctions held on Tuesday by New Zealand dairy exporter Fonterra, adding to its recovery from its weakest level seen since November 2002 hit in August.

Prices have started to perk up since Fonterra, the world’s largest dairy exporter, began reducing the amount of commodity dairy products it offers at the auctions from late last month, following a sharp drop in prices in the past year.

“The lower volume of product on offer is lending support to the market in the short term,” analysts at agriculture consultants AgriHQ said in a note.

“But a reduction in global milk production must occur to allow for a sustained recovery in dairy commodity prices.”

After rising steadily since 2008 to scale record highs in 2013, global dairy prices have eased as many buyers have stayed out of the market for months because of slowing economic growth in China and global oversupply of milk products.

The total amount of milk powders, butter, cheese and other commodity dairy products sold fell 2.3 percent from two weeks ago, while average prices for all products rose 12.7 percent to $2,226 per tonne, off a record low of $1,815 hit in August.

Prices for whole milk powder, the most traded product at the auction, rose 12.1 percent to $2,078 per tonne, bouncing further off $1,590 touched last month, the lowest since the auctions began in 2008.

Prices for skim milk powder and anhydrous milk fat each rose 11.7 percent, while butter milk powder climbed 30 percent. Prices for cheddar rose 4.7 percent.

Gains seen at the latest auction suggest that global dairy prices may stabilise after deep falls seen in past months prompted Fonterra to slash its forecast farmgate price to a 10-year low and cut hundreds of jobs while tightening its spending plans.

Global dairy prices have fallen sharply as slowing growth in China, the Middle East and some emerging markets has cooled demand for protein from their growing middle classes. Meanwhile, Russian import sanctions and high milk production has ramped up global supply.

Weak dairy prices have slashed farmer incomes in New Zealand and may pose wider risks to the economy of the world’s largest dairy exporting country.

Reporting by Naomi Tajitsu in Wellington and Bengaluru Commodities desk; Editing by Lisa Shumaker

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