Dairy prices dropping again after previous blip

Dairy price declines have resumed with a 4.9% fall in this week's GlobalDairyTrade auction, putting pressure on Fonterra's milk price forecast for the new season.

The previous fortnightly auction was the first increase after eight consecutive falls and it had been seen as a hopeful sign of prices stabilising.

In this week's auction, butter was down 13.6%, anhydrous milk fat down 7.4% and whole milk powder dropped 5.4%. Butter milk powder was up 4%.

ANZ economists have downgraded their 2014-15 milk price forecast to $6.25kg ms, which was in marked contrast to the $7kg ms opening milk price forecast announced by Fonterra in May.

That represented about a $3 billion fall in dairy incomes from the record 2013-14 season, they said.

Westpac senior economist Michael Gordon said dairy prices were now below where they were last February before the ''scarcity premium'' resulting from a drop in global supply started to kick in.

Westpac would be reviewing its forecast over the next week but it was likely to be ''something below $7'', Mr Gordon said.

ASB senior economist Chris Tennent-Brown said the biggest price declines for whole milk powder were in the near-term contracts, but all longer-term contracts still dipped, suggesting buyers were confident of ''ample'' supply well into next season.

While skim milk powder prices did not decline as much as whole milk powder, the downward slope of the contract curve suggested the same lack of concern for future supply.

''That lack of concern is understandable now for least,'' Mr Tennent-Brown said.

On top of New Zealand's bumper season, European production this year was thought to be several percent higher than last year, and United States production for the first quarter of 2014 was up about 1% over last year.

The ANZ commodity price index posted a fourth successive monthly decline in June, easing 0.9% in the month to be 6.7% below the February peak. Eight commodities reported a weakening in prices, six firmed and three were unchanged.

The largest fall was in the price of apples, which fell 6%, which was a typical pattern for the time of year as the northern hemisphere export season evolved.

Log prices dropped 5% and whole and skim milk powder prices eased 3%.

Dairy and forestry have fallen to 16- and 14-month lows respectively, while horticulture and aluminium commodity prices have increased to 12- and 14-month highs respectively.

Meat prices have risen to a 14.5-year high and seafood prices remain at an all-time high.

Separately, the Rabobank Rural Confidence survey released yesterday showed lower optimism among local dairy farmers because of rising interest rates, a strong exchange rate and falling global milk prices.

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