Sixth consecutive fall sees dairy at six-year low; butter fares worst

Dairy prices are at their lowest for six years, with a further 4.3% drop in this week's GlobalDairyTrade auction.

It was the sixth consecutive fall and prices now sit nearly 38% below a year ago. Butter recorded the largest fall, of 10%, continuing its steep decline since March.

The result was disappointing given other indicators of prices, such as futures markets, had been hinting at some stabilisation in recent weeks, Westpac senior economist Michael Gordon said.

Westpac was now expecting a farmgate milk price of $5.40 for the 2015-16 season, down from its $5.70 forecast, but still an improvement on Fonterra's opening forecast of $5.25.

Both forecasts were contingent on an improvement in world prices over the course of the season. The conditions for such an improvement did not appear to be in place ''just yet'', Mr Gordon said.

ASB was sticking with its $5.70 forecast for 2015-16, with rural economist Nathan Penny saying the recent falls in the New Zealand dollar balanced the down side risk from the latest auction result.

Markets would need time to absorb the extra product from the better-than-expected end to the New Zealand production season.

Mr Penny expected prices to remain weak for another two to three months, before beginning to recover in earnest later in 2015.

The ANZ commodity price index declined by 4.7% in May, driven by the drop in dairy product prices.

The index was now 18% lower than 12 months earlier and 22% below its February 2014 peak. Skim and whole milk powder prices fell by 13.2% and 10% respectively.

Powder prices continued to suffer from lacklustre Chinese demand and increased competition from European skim milk powder, ANZ agri economist Con Williams said.

Meanwhile, applications were now open for Fonterra suppliers to lock in a guaranteed milk price for a percentage of their milk for the new season.

There were two opportunities in the 2015-16 season to secure a GMP on 60 million kg ms - up to 40 million kg ms was available in June, and up to 20 million kg ms would be available in December.

Farmers looking for a GMP could now apply to supply some of their estimated milk production across one or more of five prices - $5.25, $5.15, $5.05, $4.95 and $4.85 - at and below the 2015-16 forecast farmgate milk price.

Once applications closed on June 19, the total kg ms offered by all applicants at each price would be totalled.

Allocations would be made based on the prices at which milk solids were offered from the lowest price up and the GMP would be determined at the highest price at which a total quantity of milk solids in a specified range was reached.

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