A milk price forecast prefaced with $3 is becoming an increasing likelihood after yet another horror fall in global dairy prices.
The dairy industry's woes continue with prices plunging a further 9.3% in this week's GlobalDairyTrade auction, marking the 10th consecutive fall and reaching its lowest level since 2002.
Bank economists were sharpening their pencils yesterday, revising down their milk price forecasts ahead of Fonterra's update tomorrow.
ANZ is now forecasting $3.50 and Westpac is predicting $3.70 while ASB is expecting Fonterra to downgrade its forecast from $5.25 to about $4.
Fonterra was expected to announce its latest forecast tomorrow afternoon, following a board meeting, and a ''significant downgrade'' from $5.25 would be necessary, Westpac economist Michael Gordon said yesterday.
Key product whole milk powder was down 10.3% in this week's auction, the lowest since 2002.
As in the previous auction, prices were ''limit down'' for several contract periods - meaning they did not rise above their starting price -implying the downward pressure on prices was likely to spill over into the next auction as well, Mr Gordon said.
ASB rural economist Nathan Penny said buyers continued to back right away from the market, ''not wanting to catch the falling price knife''.
''This dynamic is understandable given that well-stocked buyers can put off buying now, with the possibility that prices will still be low, or lower, at future auctions.''
Prices would eventually turn and, with very low prices, buyers might look to grab a bargain while they could. Global dairy supply was gradually tightening and there was the possibility of a drought
in New Zealand this summer caused by El Nino, he said.
Brian Rice, principal and owner of Chicago-based commodities broking house Rice Dairy, said the GDT result showed Fonterra's milk price might struggle to get over $3.
''It is not pretty for the global dairy trade and not pretty for New Zealand farmers,'' he said.
''We are close to the bottom but I don't think we are quite there yet,'' he said.
''In the general scheme of things, over a longer-term horizon, these prices are extremely low,'' Mr Rice said.
Labour's finance spokesman, Grant Robertson, said some dairy farmers would struggle to survive what was likely to be two years of a payout well below break-even point.
Slamming National for ''failing to properly diversify the economy'', Mr Robertson said it had been content to ''bask in the glory of high commodity prices and lean on the Canterbury rebuild''.
''It was never good enough and now the `rock star' economy is on the skids, they are simply in denial,'' he said.
Westpac has forecast $5.20 in its first estimate of the milk price for the 2016-17 season.
While an improvement on this season, it was still below the average of $5.80 over the past 10 years.
There was still a ''huge degree of uncertainty'' around how prices would perform over this season and next, Mr Gordon said.
