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UPDATE 2-Global dairy prices dip, worry New Zealand farmers
March 7, 2017 / 7:43 PM / 9 months ago

UPDATE 2-Global dairy prices dip, worry New Zealand farmers

    * Average dairy prices fall 6.3 pct at fortnightly auction
    * Points to slower-than-hoped recovery
    * Demand not matching ramped up supply -analysts

 (Recasts, adds comment)
    By Tom Westbrook and Charlotte Greenfield
    WELLINGTON, March 8 (Reuters) - Prices dropped more than 6
percent at a key international dairy auction on Wednesday,
suggesting stronger supply could take the edge off an ongoing
recovery in the sector.
    The fall in prices at the fortnightly Global Diary Trade
auction worried farmers in major milk supplier New Zealand,
stoking fears they could receive lower payments from dairy giant
Fonterra          next season than the NZ$6 ($4.18) per kg
forecast earlier.
    The decline underscores the fine balance between supply and
demand in global dairy markets at the moment, with sharp
improvements in prices last year prompting more supply.
    "If we were to get a trend of a couple of drops of the scale
we had last night it doesn't take much to get back to some
pretty poor prices," said dairy farmer Andrew Hoggard, who is
the head of New Zealand's Federated Farmers dairy group.
    Average prices fell 6.3 percent at the sale, with an average
selling price of $3,512 per tonne. Prices for whole milk powder,
a major New Zealand export, plummeted over 12 percent.
    A total of 22,328 tonnes were sold at the auction, up 9
percent from the last sale.
    "It will be difficult for prices to recover quickly while
there is surplus product available," AgriHQ dairy analyst Susan
Kilsby said in a research note.
    Prices fell 3.2 percent at the previous sale and also
dropped in January - stalling a trend of tightening supply that
drove up prices by 50 percent in 2016.
    However, analysts said the underlying trend for stronger
prices would broadly remain on track.
    "With Chinese demand looking to be holding steady for now,
and global supply still well shy of 2016's peaks, we expect
prices to remain well off 2016's lows," said Sarah Drought, an
economist at Westpac. 
    The New Zealand dollar         hit a two-month low in the
wake of the auction, falling 0.6 percent to NZ$0.6962 on a
combination of U.S. dollar strength and investor reaction to the
dismal results. 
     Global Dairy Trade is owned by New Zealand co-operative
Fonterra but operates independently from the dairy giant. 
Companies including Dairy America and Murray Goulburn         
use the platform to sell milk powder and other dairy products.
    The next auction is due on March 21.   

($1 = 1.4347 New Zealand dollars)

 (Reporting by Tom Westbrook and Charlotte Greenfield; Editing
by Ruth Pitchford and Joseph Radford)

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