A mix of shock and horror among producers and sellers greeted the news that the Global Dairy Trade (GDT) auction fell by 6.9% at Tuesday’s event.

Things were going OK, so the substantial fall in prices has come as a shock. It was bad news across the board.

Anhydrous milk fat took the biggest drop, falling by 10.7%, followed by butter, which fell by 10.2%, cheddar by 6.9%, skim milk powder (SMP) by 6.1% and whole milk powder (WMP) by 4.3%.

On top of this, the amount of product traded was well up on the previous auctions, with over 24,000t sold, well above the 16,000t to 17,000t sold at recent auctions.

It’s a bad start to the New Zealand production season and the reasons for the decline in prices are not overly apparent.

Cheese and butter prices have been rising steadily for the last two months, fuelled by rising demand and lower global supplies.

The price drop is a blow to confidence and all eyes will be on what happens next. We are heading into the summer holiday mode when trading usually gets quiet anyway.

On top of this, prices usually fall in early summer as supplies increase, but that didn’t happen this year. This points to the fact that perhaps the drop at this auction is a natural correction in the market as opposed to a bigger problem.

Certainly, supply profiles would indicate that the market isn’t overloaded with milk. The fact that sales increased when prices dropped does signal that the market can only afford to pay so much for dairy.