Dairy prices lowest for over 2 years

Dairy prices have fallen to their lowest level since August 2016 and economists are signalling there could be more price weakness to come.

In this week's GlobalDairyTrade auction, overall prices fell 2%. Prices have now fallen in 10 out of the last 11 auctions and are down 17.6% over that period.

The result was weaker than expected. Futures pricing before the auction had pointed to a whole milk powder price lift of about 2%, but it was down 2.9%, ASB senior rural economist Nathan Penny said.

''We had thought futures pricing was a tad optimistic but prices were even weaker than our expectations for no change.'

Anecdotally, New Zealand milk production went ''up another gear'' in October, the peak month for the country's production.

If the forecasts prove correct, the extra milk would put further downward pressure on dairy prices, he said.

ASB recently revised its 2018-19 production growth forecast from 2% to 4% but may be even higher.

However, there was an increasing chance of an El Nino weather pattern this summer and the associated dry weather could affect production later in the season.

Westpac senior economist Anne Boniface said the further auction softness had the bank concerned about downside risks to its milk forecast of $6.25. Auction prices would now have to rise significantly in 2019 to make that figure achievable.

Yesterday, the Dairy Companies Association of New Zealand (DCANZ) said news that the review of the China-New Zealand FTA was unlikely to result in improvement for the New Zealand dairy industry.

It increased the importance of high quality and timely access improvements for dairy from the other trade negotiations under way.

''Despite the close relationship that New Zealand and China enjoy, New Zealand dairy exports to China continue to incur over $100million in tariffs each year, with the safeguards regularly triggered in early January.

''Additionally, New Zealand exporters of milk powder, cheese and butter will be at a growing tariff disadvantage relative to Australian competitors until these safeguards end in 3-5 years,'' DCANZ chairman Malcolm Bailey said.

DCANZ agreed with the assessment New Zealand would have the best access into China of any country in the world when dairy safeguards ended in 2024. However, five years would be a long time for New Zealand dairy exporters to be at a tariff-rate-driven commercial disadvantage.

It was therefore important for New Zealand to advance high quality and timely access improvements for other markets.

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