Dairy payout drop forecast despite auction price rise

Nathan Penny.
Nathan Penny.
Dairy auction prices snapped a seven-time losing streak and rose 2.2% overall in Fonterra's latest fortnightly GlobalDairyTrade auction.

During the past 20 fortnightly auctions, there have been 16 price declines and four gains.

Speculation is mounting Fonterra, when it publishes its first-quarter results today, will lower its forecast farm-gate payout again, which is sitting at $6.25 to $6.50 per kilogram of milk solids for the 2019 season.

Economists with the ASB, ANZ and BNZ have already altered their forecasts down, within a range of $6 to $6.10/kgMS.

Dairy prices at present are 18.8% lower than at the start of the 2018-19 season.

ASB economist Nathan Penny said while observers should be happy to accept the positive auction result, he was suspicious the 2.2% overall gain was similar to declines in the US dollar over the same period.

''In particular, the Chinese yuan has lifted, making US dollar-priced products cheaper for Chinese buyers.''

Increasing New Zealand milk production was likely to keep downward pressure on dairy prices over the coming months, Mr Penny said.

He expected Fonterra to ''trim'' its payout forecast, closer to ASB's $6 per kilogram.

The average auction price was $US2819 ($NZ4067) a tonne, compared with $US2727 a tonne two weeks ago. There was 36,450 tonnes of product was sold, down from 42,966 tonnes two weeks ago.

Butter milk powder soared 16.9% to $US2973 a tonne, while anhydrous milk fat advanced 3.9% to $US4755 a tonne.

Butter rose 2.7% to $US3745 a tonne, while rennet casein increased 2% to $US5167 a tonne.

Lactose rose 0.5% to $US918 a tonne, while skim milk powder inched 0.3% higher to $US1970 a tonne. Bucking the trend, cheddar fell 2.2% to $US3184 a tonne, while whole milk powder climbed 2.5% to $US2667 a tonne.

-Additional reporting by BusinessDesk


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