Federated Farmers is "not hitting the panic button just
yet" as milk prices tumble. Photo by Peter McIntosh
The risk of a Fonterra milk price payout in the $5 range
is being suggested after yet another tumble in global dairy
prices this week.
The latest GlobalDairyTrade auction was down 8.4%, with whole
milk powder prices down 11.5% to their lowest since early
Since February, prices have fallen 40% with a 20% slump over
the last three auctions alone.
This week's result was weaker than economists had
Fonterra's revised milk price forecast of $6, announced last
week, looked ''optimistic at this point'', with the current
prices and the level of the New Zealand dollar suggesting it
would end up paying farmers in the mid-$5 range for the
2014-15 season, BNZ currency strategist Raiko Shareef said.
Last week, DairyNZ chief executive Dr Tim Mackle said $6 was
a break-even payout for many dairy farmers.
Westpac senior economist Anne Boniface said this week's fall
in prices created a ''clear risk'' the milk price would be
below Westpac's current forecast, which was also $6, but the
bank would prefer to see another auction before formally
cementing in a new forecast.
There was ''still a lot of water to go under the bridge''
before the end of the season and commodity prices could be
volatile. ASB, which has cut its milk price forecast from
$6.20 to $5.80, warned of a milk price closer to $5 if prices
stayed near their current low levels for an extended period.
Federated Farmers dairy chairman Andrew Hoggard did not
expect the latest GDT result to affect the payout forecast in
the near term.
The expected market recovery in the New Year would be
critical, he said.
The latest decline continued a trend expected by Federated
Farmers and the rural lobby organisation was ''not hitting
the panic button just yet'' especially when there were signs
of life in the latest auction.
''We saw more buyers and they bought more product so things
are looking up, if not the price yet,'' Mr Hoggard said.
The 48,380 metric tonnes sold was the most in the 2014-15
season to date.
There were also 153 successful bidders, the most in the
current season and the most since April 1.
''When you've got volume and bidders, that's a good
indication prices may be close to stabilising,'' he said.
Ms Boniface said there were few clear signs of an imminent
turnaround in sentiment.
For whole milk powder, buyers were only willing to pay
fractionally more to secure product at later delivery dates.
Lack of Chinese demand, in particular, had been a key reason
for the fall in prices.
Strong buying earlier in the year, combined with softer end
demand by Chinese consumers, left Chinese wholesalers
Over time, that imbalance would work through the system.
Stocks would be run down and a recovery in the Chinese
consumer sector was anticipated.
As that happened, wholesalers would be forced to re-enter the
market and prices were expected to rise.
However, just how long that process took remained a key
uncertainty, Ms Boniface said.
While farmers hoping for a recovery, or, at least,
stabilisation in prices, would have been disappointed by the
latest out-turn, they would be heartened to see currency
markets ''finally starting to sit up'' and take notice of
slumping dairy prices, she said.
An ASB report yesterday pointed out it was early days for the
About 80% of product for this season's milk price was yet to
have prices set.
''As a result, a lot can and will probably happen between now
and the season's end,'' it said.
The ASB continued to expect dairy prices to stabilise and
then recover by the end of 2014, but predicting the exact
timing of any price rebound remained ''an inexact science''.
When asked about the impact on domestic retail milk and dairy
prices, ASB chief economist Nick Tuffley said movement up and
down in retail prices was generally ''pretty smooth''.
Often, when there was a big surge in global prices, the same
movement was not seen in domestic retail prices, and it was a
''bit the same on the way down''.
There would be marginal impact on domestic retail prices on
any given auction, he said.