Dairy Trends: GDT pulse prices rising but European spot prices dropping

European spot market prices for dairy products declined again this week, with butter dropping by €35/t to €5,435/t, whole milk powder (WMP) by €25/t to €3,555/t, skim milk powder (SMP) by €10/t to €2,440/t and cheddar cheese by €30/t to €4,110/t.

The small price drops have been happening week on week since early December and defy the narrative that dairy markets are humming. If they are humming, then how come prices are falling?

Couple of points - the Global Dairy Trade (GDT) auction is humming along nicely with around 2% gains over the last couple of auctions. The GDT pulse auction also performed well this week, with WMP rising by €38/t to €2,996/t. Note the difference in value between WMP in Europe spot market and WMP in the GDT pulse.

If prices are converging, then a drop in European prices is expected. SMP increased even further at the pulse auction, rising by €87/t to €2,429, which is almost on a par with European prices.

On the one hand, it’s hard to have confidence that markets are strengthening if prices are falling, but on the other hand, once the GDT keeps rising then prices are strengthening. It’s important to note that the spot market is only a guide.

Most Irish product is not sold through the spot market but through longer-term agreements with buyers in rolling agreements. In New Zealand, ASB Bank has increased its milk price outlook on the back of the higher GDT prices. Interestingly, China is still largely absent from the market, buying the least amount of WMP in six months at the last auction.