Dairy prices suffered their biggest loss at GlobalDairyTrade since 2010, taking them nearly back to where they started the year, as ideas of New Zealand drought and Chinese buying evaporated.

The GlobalDairyTrade index tumbled 10.8%, the largest fall since July 2010 at the auctions, which are run by New Zealand dairy giant Fonterra.

«This event erased all of the gains this year, all of the buying of the New Zealand drought scare,» said Dave Kurzawski, senior broker at INTL FCStone’s Chicago-based dairy division.

In fact, the index has lost 18.7% from a peak a month ago, reached on concerns that dryness in New Zealand, the top milk exporting country, would act to tighten ample world supplies.

The index now stands up just 3.7% for 2015.

«Weather rallies come and go, and this one proved to be a flash in the pan,» Mr Kurzawski told Agrimoney.com.

‘Not climbing the wall with worry’

Nor were there signs of China, a key dairy import market, returning to purchases in earnest, with improved domestic milk production and large inventories run up on historic buying sprees allowing it to remain on the sidelines.

«Buyers are not climbing the wall with worry here. China has had full inventory for a while,» Mr Kurzawski said.

Indeed, China’s whole milk powder imports fell in February year on year for a sixth successive month, this time by 49%, for a cumulative decline of more than 275,000 tonnes.

‘They have invested millions’

The drop in milk prices also came the same day as the European Union, the top milk producer, ditched longstanding output quotas — an event which has raised some, although not universal, concerns of a surge in volumes ahead.

«Low margins may temporarily dampen producers’ enthusiasm for a sudden increase in milk production,» the US-based Milk Producers Council said.

«But surely after 31 years there must be a lot of pent-up appetite for expansion? European processors certainly expect more milk — they have invested millions in additional capacity.»

In fact, latest EU milk output data showed a decline in January of 0.7% year on year to some 12m tonnes — the first drop in 19 months.

Farmgate prices

The fall has been attributed to lower farmgate milk prices, which have prompted farmers to scale back output, and to the prospect of penalties for overproduction for the year to March, while quotas were still in place.

And there are some signs of milk price increases, in Europe and beyond.

Danish-based co-operative Arla last week revealed some price increases, while in New Zealand, Synlait milk raising its forecast price for the season to NZ$4.50-4.70 per kilogramme of milk solids, from NZ$4.40 per kilogramme of milk solids.

agrimoney.com