Global dairy prices rise, though whole milk powder weakens

WELLINGTON, June 2 (Reuters) - Global dairy prices continued
to improve on strength of skim milk powder sales, though whole
milk prices dropped at this month's first auction.
    The Global Dairy Price Index climbed 3.4 percent, with an
average selling price of $2,329 per tonne, in the auction held
in the early hours of Wednesday morning.
    Skim milk powder (SMP) rose 12.1 percent while whole milk
powder (WMP) dropped 1.7 percent.
    "The weaker WMP price is likely to have been driven by the
larger volumes on offer at this event combined with ongoing
weakness in demand," said AgriHQ dairy analyst Susan Kilsby in a
research note, noting that volumes of whole milk powder sales
had nearly doubled to 10,712 tonnes from the previous auction.
    A total of 24,046 tonnes was sold at the latest auction, an
increase of 32.8 percent from the previous one.
    The rise in global dairy prices was an increase for the
second auction in a row and in four of the last five auctions,
suggesting an ongoing modest improvement in dairy prices. 
    Dairy giant Fonterra last week forecast a farmgate
milk price for the 2016/2017 season of NZ$4.25, up from NZ$3.90
in the season just ending, however this was still below an
estimated break-even level of NZ$5.28. 
    Until recently, dairy was the backbone of New Zealand's
economy, representing around 25 percent of exports. But prices
have tumbled by more than half since early 2014, hurt by China's
economic slowdown and global oversupply.
    Weak dairy prices have put significant pressure on New
Zealand farmers. More than 85 percent of dairy farmers were
already estimated to be running at a loss.
    The New Zealand dollar rose to $0.6819 from as low
as $0.6761.
    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 auctions are held twice a month, with the next one
scheduled for June 15.

 (Reporting by Charlotte Greenfield; Editing by Diane Craft)