November 7, 2017 / 8:28 PM / a year ago

UPDATE 2-Global dairy prices fall for 3rd auction in a row, threatening recovery

    * Dairy prices fall 3.5 pct at fortnightly auction
    * Prices drop for third time in a row
    * Weaker prices could start to impact farmers' incomes -

 (Recasts; adds farmer comment)
    By Charlotte Greenfield
    WELLINGTON, Nov 8 (Reuters) - Global dairy prices slumped to
a seven-month low on Wednesday, suggesting an earlier rally was
running out of steam and that farmers' incomes could be hit if
the trend continued.
    The GDT Price Index dipped 3.5 percent, for its third drop
in a row, as Asian demand for whole milk powder dampened. 
    The average selling price at the auction held in the early
hours of the morning was $3,105 per tonne.
    Prices had risen in the second quarter on strong global
demand and as production eased, but have since had a bumpy ride
on volatile global demand.
    "The soft result adds to the likelihood of Fonterra
downgrading its milk price forecast for the current season," BNZ
markets strategist Jason Wong said in a research note. 
    Dairy giant Fonterra          currently pays out NZ$6.75 per
kilogram of milk solids to its New Zealand farmers. 
    Farmers are still nervous after years of plummeting prices
which only started a slow recovery at the end of 2015.
    Chris Lewis, dairy chairman for farmers' industry group
Federated Farmers, said that soft results in recent auctions
were disappointing and that the next two auctions would be
critical to determining any cuts to the farmgate milk payment.
    "We're definitely not going to take our eye off it ... The
next auction there could be a bit more of a dip," said Lewis.
    The currency fell around 0.5 percent to $0.6907 in the wake
of the auction, given the dairy sector generates more than 7
percent of the nation's gross domestic product.
    Longer term, economists and farmers were hopeful the
situation would improve as wet weather curbed production in New
Zealand, the world's largest dairy exporter.
    The lower supply could lead to a pick-up in prices in the
new year, Lewis said.
    Whole milk powder was hit particularly hard in the latest
auction, falling 5.5 percent on lower demand from China.
    Skim milk powder fared better, bouncing off a surprise fall
in the previous auction for a price gain of 1.2 percent.
    A total of 35,072 tonnes was sold at the latest auction,
down 1.7 percent from the previous one, the auction platform
    GDT Events is owned by New Zealand’s Fonterra Co-operative
Group Ltd, but operates independently of the dairy company.
    U.S.-listed CRA International Inc          is the trading
manager for the twice-monthly Global Dairy Trade auction.
    The next one is scheduled for Nov. 21.

 (Reporting by Charlotte Greenfield; Editing by Greg Mahlich and
James Dalgleish)
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