February 21, 2017 / 9:22 PM / 9 months ago

UPDATE 1-Dairy prices fall on better-than-expected supply

 (Adds analyst comment, market reaction)
    WELLINGTON, Feb 22 (Reuters) - Global dairy prices fell at
an auction held early on Wednesday, on signals that milk
production would be higher than expected.
    Average prices dipped 3.2 percent at the Global Dairy Trade
auction, which takes place twice a month, with an average
selling price of $3,474 per tonne.
    Prices for whole milk powder fell 3.7 percent while skim
milk powder fell 3.8 percent.
    "Despite the weak result overnight the underlying market
fundamentals are generally supportive," Susan Kilsby, dairy
analyst at AgriHQ, said. 
    Dairy giant Fonterra          last week said that it would
collect 5 percent less milk in the 2016-17 season, meaning
supply would be higher than its previously forecast 7 percent
     "We see this as more of a short-term market reaction to the
change in Fonterra's milk forecast than the start of anything
more serious," Kilsby added.
    Farmers and analysts had been nervous that a 50 percent
rebound in prices during 2016 after two years of falls could be
temporary after the prices were dented at two auctions in the
past three months.
    Dairy prices fell 3.9 percent in the first auction of the
year on Jan. 3, but then edged higher for the next two auctions.
    A total of 20,479 tonnes was sold at the latest auction,
falling 3.7 percent from the previous one.
    Global Dairy Trade is owned by New Zealand co-operative
Fonterra but operates independently from the dairy giant. A
number of companies, including Dairy America and Murray Goulburn
        , use the platform to sell milk powder and other dairy
    The auction results can affect the New Zealand dollar       
as the dairy sector generates more than 7 percent of the
nation's gross domestic product. The Kiwi edged down 0.3 percent
to a one-week low $0.7166 after the results, though the fall was
also caused buy the strong U.S. dollar.
    The next auction is scheduled for March 7.

 (Reporting by Charlotte Greenfield)

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