Little sign of rise in dairy prices

Photo from the ODT files
Photo from the ODT files
Dairy prices may have shown signs of stabilising but there is little sign of a strong rise soon.

Overall prices in this week's GlobalDairyTrade auction fell 0.6%, although there was 3.4% rise in whole milk powder - New Zealand's key export - which was the first increase in WMP prices since mid-June.

ASB rural economist Nathan Penny said it was difficult to draw many conclusions from the auction.

''There are some very subtle hints of prices stabilising later in the season, but at the same time, overall prices still fell,'' he said.

Skim milk powder posted the largest fall, dropping 12%, while cheddar fell nearly 8% and butter milk powder and casein also posted small falls.

Anhydrous milk fat and butter lifted 3.6% and 4.9% respectively.

Meanwhile, state-owned farming company Landcorp Farming has slashed its net operating profit forecast for the year to June 2015 from $20.5 million to between $8 million and $12 million.

That reflected the recent downwards revision in Fonterra's forecast milk price to $6, the company said in a statement.

Mr Penny said dairy prices needed to firm more decisively over the remainder of the year.

The season had ''limited time up its sleeve'' and it was now entering the key time for auctions.

''So far around 20% of the season's volumes have had their prices set. From here, each month will see prices set for roughly an additional 10% of the volumes,'' he said.

There were no clear signs of Russian purchases in the auction.

With the Russian import ban on EU, United States and Australian dairy products imposed last week, the auction might have come too early for Russian buyers, Mr Penny said.

In addition, buyers might look to purchase products directly from sellers or through second parties, he said.

Westpac senior economist Anne Boniface said there remained little sign that buyers expected prices to rise strongly soon.

For example, buyers of whole milk powder were only slightly more willing to pay more for product with later delivery dates.

Westpac has shaved 20c off its payout forecast for this season, moving to a milk price of $5.80.

Achieving $5.80 still relied on a strong rebound in commodity prices by the year's end and a small drop in the New Zealand dollar, Ms Boniface said.

The final payout could still be less than $5.80, while an unexpectedly sharp fall in the dollar or a faster rebound in dairy prices would see the bank moving its forecast upwards.

Federated Farmers dairy chairman Andrew Hoggard reiterated that price volatility would likely continue until well into the last quarter.

While this week's auction result was pleasing, it was just one result and the message to farmers remained the same - they needed to ''play it tight'' for this season, he said.

In a report published this week on China's demand for imported dairy products, Agrifax senior dairy analyst Susan Kilsby said the long-term outlook for exports was good.

By 2020, China would need to import the equivalent of 20 billion litres of milk to compensate for the shortage in its own milk supply - 75% more than was imported in 2013.

The Chinese Government initially set a target for domestic milk production of 50 million tonnes by 2015, which equated to a 40% increase from 2013 levels.

But those growth projections were ''far too ambitious'' and would not be achieved, Ms Kilsby said.

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