Dairy product prices dropped again at latest GlobalDairyTrade
(GDT) auction, putting renewed pressure on already lowered
dairy payout forecasts for 2014/15.
Prices are now 42.2 per cent down from where they were this
time last year.
Big falls were registered in the two key segments for New
Zealand producers - whole milk powder and skim milk powder -
at the auction, which economists said was starting to show
the effects of Russian sanctions.
At the previous GDT auction two weeks ago, prices showed
signs of stabilising but this time around the GDT price index
dropped by 6.0 per cent to US$2787 a tonne.
Whole milk powder prices fell by 4.3 per cent to an average
price of US$2673 a tonne while skim milk powder prices
dropped by 9.5 per cent to US$2600 a tonne.
ANZ said the market appeared to be struggling to digest the
seasonal lift in New Zealand supply and the recent Russian
sanctions on European Union dairy exports looked to be
flowing through "in full force". The effect of the Russian
bans was showing up in skim-milk powder, which have dropped
by 26 per cent since sanctions were announced.
In times of surplus milk, Europe gravitates toward skim milk
powder and butter production due to a longer shelf life
compared with other products, and government support
The European Commission last week said it would open "private
storage aid" for butter, skimmed milk powder and certain
cheeses in order to alleviate the impact of Russian
restrictions on imports of EU dairy products and to limit the
negative effects on the internal market.
"So despite European supply now heading into the seasonally
lower period and the European Commission announcing last week
they will open Private Storage Aid until the end of the year
the market seems to be anticipating high supplies," ANZ said.
ANZ said the latest GDT price action suggested a sharply
lower farmgate milk price. "Dairy farms will need to budget
accordingly with a material gap between current spot prices
and Fonterra's current $6/kg forecast," the bank said.
"We would suggest toward the bottom of our current forecast
band of mid-to-high $5's/kg. But even this looks optimistic
given last night's results," the bank's rural economist Con
Fonterra, New Zealand's biggest dairy co-operative, last
month said it had maintained its forecast Farmgate Milk Price
for the 2014/15 season at $6.00 per kg of milksolids, after
earlier reducing it from $7.00 a kg in line with lower GDT
Just days later, the second biggest cooperative, Westland
Milk Products, said it had would cut its payout by 60c a
kilogram of milksolids to a range of $5.40 to $5.80 a kg,
before retentions, in the coming season.
Federated Farmers said at the time that Westland's decision
would cause "serious belt tightening" on the West Coast. Skim
milk powder is a substantial proportion of Westland's
Fonterra last week announced plans to ramp up milk powder
production with a $555 million investment in new plant for
its South Waikato and Southland operations.
At the same time, Fonterra said it intended to take a stake
of up to 20 per cent in Chinese infant formula partner,
The New Zealand dollar dipped below 83 US cents for the first
time since February on the back of the weaker auction and on
renewed strength in the US dollar.
The local currency touched a low of 82.89 US cents, and was
trading at 83.14 cents at 8am in Wellington, from 83.46 cents
at 5pm yesterday
- By APNZ business reporter Jamie Gray and