Volatility chart
May 4, 2016

Global Dairy Prices Soften

 |  By: Jim Dickrell

After two sessions of positive price news, dairy prices retreated 1.4% on the GlobalDairy Trade auction this week in New Zealand. The weighted average price of the eight commodities offered fell to $2,203 per metric ton yesterday.

Skim milk powder dropped 3.6% to 76¢/lb., just a penny above U.S. SMP prices. Whole milk powder did bump up 0.7% to $2,176/ton. But for a full recovery to occur, whole milk powder will have to climb to $3,000, says Marc Beck, with the U.S. Dairy Export Council.

That likely won’t happen until, and if, oil prices recover because there’s a better than 80% correlation between whole milk powder prices and oil. To get to $3,000 whole milk powder, oil prices would have to trade at $65/barrel. Oil is currently trading in the mid $40s.

Butter was down 5.5% to $1.18/lb on yesterday’s GTD trade, still way below the U.S. price of $2.00. The only good news is that cheddar cheese increased 1.8%, to $1.24/lb. But that’s still about 10% less the U.S. cheese prices, making U.S. cheddar uncompetitive on world markets.

The 20,616 metric tons traded was the lowest volume in three years. For all results, click here.  

Near the bottom? Mark Linzmeier, a dairy analyst with MarginSmart Dairy Analyzer based in Green Bay, Wis., says dairy markets could be nearing the bottom if history is any guide. Over the last two price cycles, it took 20 to 24 months for prices to reach bottom following a previous peak. May 2016 marks the 20th month since prices peaked at $24.58 in September 2014, Linzmeier notes.