Further pressure is on Fonterra's forecast milk price, with
prices down 6% in this week's GlobalDairyTrade auction -
42.2% lower than a year ago.
Last week, Fonterra maintained its forecast milk price for
the 2014-15 season at $6 but, on the back of this week's
auction, the risks were clearly to the downside of that
forecast, economists warned yesterday.
ANZ has cut its forecast to $5.25, which represented about a
$5.1 billion, or 2.2% of GDP, hit to dairy revenue compared
with last season, if it eventuated.
Since the most recent peak in February, overall prices were
down 44.5% and, over that period, prices had fallen in 13 out
of 14 auctions.
Casein, butter milk powder and skim milk powder posted the
biggest falls in this week's auction, dropping 14.3%, 12.9%
and 9.5% respectively.
Whole milk powder fell 4.3%, more than reversing the 3.4%
increase a fortnight ago, and other products recorded falls
in the 5%-6% range.
Fonterra would have another opportunity to update the market
at the end of the month, when it announced its financial
results and the final payout for the 2013-14 season.
Westpac had been ''cautiously optimistic'' there were signs
of stabilisation a fortnight ago, but that had proved
premature, senior economist Anne Boniface said.
In a commentary, ANZ economists said this week's auction
confirmed earlier suspicions Oceania prices were yet to
It was hard to forecast what might happen, but it was
difficult to see a catalyst for higher prices despite them
being below the cost curve for all the major exporters.
The market was sending confusing signals with high prices in
the likes of the US due to strong domestic demand, but
plunging prices for Oceania and European product, the report
When Fonterra announced there was no change to the forecast
last week, chairman John Wilson cautioned that current market
conditions were difficult and there remained further downside
Last week, West Coast-based Westland Milk Products, New
Zealand's second-largest dairy co-operative, cut its forecast
payout by 60c for the 2014-15 season, from a $6-$6.40 range,
before retentions, to a $5.40-$5.80 range.
Ms Boniface said skim milk powder prices had fallen sharply
in the past month or so. Prices were down 20% from early
August, while whole milk powder prices were just 1% lower.
Strong growth in milk supply from northern hemisphere
producers and the impact of Russia's year-long ban on food
imports from some Western countries were likely to be two
factors weighing on prices, she said.
Russia was an important importer of butter, skim milk powder
and cheese from the European Union, and closing its doors to
exports from Europe would increase global supplies of those
While dairy prices remained ''in the doldrums'', lamb prices
were holding up well, horticulture prices were favourable,
and seafood prices were up 7% on a year ago.
The ''star performer'' was the beef industry, with tight
supplies continuing to be the key factor driving prices
higher, she said.