According to Michael Gordon, senior economist at Westpac, dairy prices fell another 9.3 per cent in last night’s GlobalDairyTrade auction, with the average price now $2,763 per metric tonne. As in the previous auction, prices were “limit down” for several contract periods, implying that the downward pressure on prices is likely to spill over into the next auction as well.
“As bad as this result was, it was just as bad as we were bracing for,” says Gordon. “Hence we can confirm a further downgrade to our forecast of the Farmgate milk price this season to $3.70 per kilo of milk solids. Our latest quarterly Economic Overview, which will be released next week, has been prepared with this forecast in mind.”
Dairy prices at Fonterra’s fortnightly auction fell for the 10th successive time.
Last month prices fell 10.7 per cent to US$2,082.
Whole milk powder fell 10.3 per cent to US$1590 per tonne.
Dairy prices were expected to fall amid high supply and weak demand and many dairy farmers are expected to be suffer losses with low dairy prices.
“Farmers now face two consecutive seasons of extremely low milk prices,” AgriHQ dairy analyst Susan Kilsby said. “Very few farmers will be able to turn a profit at such a low milk price.”
The AgriHQ 2015-16 Farmgate milk price decreased to $3.34 per kilogram milk solids, down 90 cents from the previous auction held three weeks ago.
This compares with Fonterra’s 2015-16 milk price forecast of $5.25/kgMS which it is expected to revise at the end of this week.
“Many of the products offered by Fonterra sold at their opening prices,” Kilsby noted. “This indicates there was not sufficient demand from buyers to match the larger quantities of product offered.”
The volume of whole milk powder offered was 78 per cent greater than at the previous auction.
“Clearing the greater volume of product offered was always going to be a challenge in today’s weak market,” Kilsby said. “However, it is still very disappointing that many prices didn’t move above their opening levels.”
Skim milk powder suffered the biggest fall – down 14.4 per cent to US$1,419 a tonne, while anhydrous milk fat sank 11.7 per cent.
Butter, butter milk powder and rennet casein also fell while cheddar eked out a small gain.
Alessio de Longis, a money manager in the Global Multi-Asset Group at OppenheimerFunds in New York, told Bloomberg that he expects the Kiwi to fall to as low as 50 US cents in the next one to three years.
Headline: NZ:Dairy auction prices drop for 10th time
Fonterra is due to provide an update of its own milk price forecast on Friday.