Global Dairy Trade falls again

Wholesale dairy values fell for the fifth consecutive time at the latest Global Dairy Trade (GDT) auction on 16 August.

Prices fell by 2.9% on the previous auction to average US$3,768/t (£3,112/t).

Global dairy values at the fortnightly event have fallen by US$1,297/t (£1,071/t) since peaking at the beginning of March this year.

See also: Cost pressures prompt First Milk, Saputo, Muller price rises

More than 30,000t of product was sold at the GDT event, with 162 participating bidders.

Sales of whole milk powder typically accounts for more than half of the total volume sold at the events and skimmed milk powder usually accounts for about a quarter.

Anhydrous milk fat had the biggest reduction in price, dropping by 9.8% to average US$4,990/t (£4,121/t), while whole milk powder dropped by 3.5% to average US$3,417 (£2,822/t).

Sales of cheddar at the auction bucked the trend and increased by 4.2% to US$5,005 (£4,134/t).

The GDT price index is now at its lowest level since January 2021.

Kite Consulting managing partner John Allen says the fall in demand at the GDT auctions is largely driven by a combination of reduced demand from China and also recessionary impacts around the world.

Mr Allen said: “The supply of dairy in the world is contracting and we have got a unique situation where there is a mixture of both falling demand and falling supply at the same time.”

In Europe, prices are still operating above 45p/litre and the markets are very finely balanced, and despite falls in protein prices and skimmed milk powder, butter prices are holding up remarkably well, according to Mr Allen.

World milk supply is estimated to be falling by between 0.7% and 1.5% this year according to early estimates.

Impact on UK market

The GDT index is used by industry as a measure for wider market sentiment and can be used as an indicator for potential price movements at farmgate level.

The direct impact on UK prices is generally fairly minimal, with much of the product traded focusing on New Zealand and the Pacific region. However, longer term declines in the global price index as seen currently will have some bearing.

Dairy market analyst Chris Walkland said: “At the moment, butter is seemingly quite robust, but skimmed milk powder prices are dropping in line with the GDT and that is the major area which is affecting the UK market and will have an effect on returns.”

Mr Walkland said sentiment in the European market is more robust than it is in the southern hemisphere, largely because butter prices are staying up.

Milk production in Europe is also reportedly continuing to track at low levels, similar to the UK.

UK supply

GB milk production was at a five-year low in July totalling just 1.025bn litres, according to AHDB.

July’s average daily deliveries were 0.6% lower than the previous year, with an average of 33m litres a day.

For the milk year so far (April to July), total production was 1.5% lower than last year’s levels.

Mr Allen said: “The breakeven costs of production are actually rising on farms at the moment because of the drought, and the high levels of costs of production are likely to remain because of the current weather situation across Europe.”

Freya Shuttleworth, dairy and livestock analyst at AHDB, said: “Our latest dairy market outlook suggests we could see milk deliveries for the full season [Apr-Mar] drop by between 1.0% and 3.8%, depending on the severity of cashflow pressures facing farmers.