While the Ornua market indicator – the purchase price index (PPI) – was announced and was up again this week, New Zealand’s Global Dairy Trade (GDT) auction result was down.

The GDT experienced the largest one-off decline since 2014 at the first auction in May, with a fall averaging down 8.5%. This reaffirms weaker sentiment on the global dairy market, especially for a product such as butter.

The butter price lost 12.5% to $5,807/t. Milk powder prices also fell sharply. It’s fair to say the declines are much sharper than analysts had expected.

Of course, milk supply is rising, as it normally does at this time of the year. However, it is still well back on other years and there are also no big stocks in cold storage.

The decrease seems to be more of a correction or a response to the very rapidly rising dairy prices so far this year.

When the Russia-Ukraine conflict ignited, there was a sharp market response. Maybe some traders are having second thoughts about purchasing at such record high prices.

China could also be having an effect and maybe there is a COVID twist in that piece also as Chinese March purchases have tailed off.

The PPI for April is 177.6 (54.4c/l, VAT inclusive based on Ornua’s product purchase mix and assumed member processing costs of 9.2c/l and excluding member margin) and is up from 164.3 the previous month. In addition, the Ornua value payment payable to members in the month is €6.64m, which equated to 4.2% of gross purchases in the month (3.8% year to date).