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