Prices slipped again in this week's GlobalDairyTrade auction,
as strong late-season New Zealand milk production continued
to make its mark.
The index was down 2.6%, with a 4.9% fall in butter prices,
4.4% drop in skim milk powder and a more modest 1.6% decline
in whole milk powder prices.
Prices might dip further this season before recovering in the
second half of the year, ASB rural economist Nathan Penny
The index was down 19% since December and, at the same stage
in 2012, it was down a similar 21%, Mr Penny said.
While it was late in the season, the recent falls were enough
to ''take the cherry off the top'' of this season's milk
price, he said.
ASB had trimmed its farm gate milk price forecast to $8.50kg
ms. However, the extra production should largely offset the
lower milk price.
Looking ahead, the bank was maintaining its 2014-15 season
forecast at $7.80, although it was keeping it under review.
A lower milk price was a ''distinct possibility'',
particularly if the New Zealand dollar stayed stronger for
longer than the bank had factored in, Mr Penny said.
Meanwhile, lamb prices continued to improve, averaging 18%
higher than the same period in 2013.
He expected lamb prices to continue to rise over the
remainder of the year, due to improving international demand
and tight local and Australian supply.
However, prices remained below the five-year average for this
time of year and the lingering effect of drought was still
Wool prices were ''going nowhere fast'' and it would be
another season before sheep sector incomes returned to
pre-drought levels, he said.
After strong rises over 2013, wool prices had given back some
of their gains in 2014. March average prices for coarse wool
(35 micron) were 4% lower than the average for December last
year. Prices remained 7% above year-ago levels, a recent ASB
Demand from developed economies remained key to wool markets
and wool prices.
Overall demand was tentatively improving. The housing market
in the United States was better but recent weather
disruptions had slowed the improvement.
Demand for US apparel was also better and, while European
demand was ''showing signs of life'', it remained fragile.