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Milk powder prices down 14% in latest Fonterra auction
December 3rd, 2008
Whole milk powder prices fell 14% between Fonterra’s internet auction in November and its latest auction in December, Fonterra said, adding prices had now fallen 49% since July 2008.
The latest slump raises fresh questions about Fonterra’s payout forecast for the current season of NZ$6.00/kg of milk solids, which is down from NZ$7.66 last season and made before the latest slump.
A payout well below NZ$6.00/kg now looks likely, particularly given reports that fellow cooperative Westland Milk Products is now forecasting a payout of NZ$5.20-$5.60 a kg, which is down from its NZ$7.99/kg the previous year.
The prospects of a lower Fonterra payout adds to the pressure on the Reserve Bank to cut the Official Cash Rate by as much as 150 basis points on Thursday to bolster an economy that had been relying on an export recovery to end the current recession.
Fonterra said that there would continue to be downward pressure on prices until supply declined or buyer confidence improved.
“The current economic crisis has resulted in a significant drop in the demand for dairy commodities, and a continued decline in prices was expected,” said Fonterra’s Commercial Director of Global Trade Guy Roper.
“There will continue to be downward pressure on prices, until either the supply of product declines, or buyers have confidence that the global economic situation will improve.”
In November, Fonterra cut its forecast payout from NZ$6.60 to NZ$6.00.
Tags: Dairy Prices, Fonterra, Guy Roper, Milk Payout, OCR, Westland Milk Products, Whole Milk Powder
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December 3rd, 2008 at 12:05 pm
I doubt very many farmers had budgeted for collapses in their income on this scale compared to last year. Much has been made of the fact that as agricultural exporters we should do relatively well during the global recession. However I am of the opinion that so much of what we now produce are ‘high end’ agricultural commodities, which can and will be substituted for by cheaper alternatives as folk in our overseas markets feel the crunch. After all Asian consumers can easily go back to sticky rice for breakfast instead of expensive dairy products, and Europeans can easily substitute cheaper chicken for imported lamb. It’s not quite as easy to export your way to growth off the back of a falling currency when overseas markets are cratering as some would have us believe.
December 3rd, 2008 at 12:24 pm
Cant see any dairy price reductions in the Supermarkets,they seem to be gouging even more,I suppose ComCom are now off on their inflation proofed income holidays,compliments of private enterprise,where the real work is performed.
December 3rd, 2008 at 12:59 pm
Lower OCR will be needed to stop hundreds of Dairy Conversion mortgagee sales.
December 3rd, 2008 at 2:59 pm
Andy Hamilton
I dont see how you can go on about ‘high end’ dairy products when we are talkiing i think about powered skimmed milk prices? Isnt that a low end product?
Or am i wrong?
December 3rd, 2008 at 9:33 pm
Worth pointing out that in NZ dollar terms our commodity export prices have hardly changed at all since they reached their highest point in August following a massive surge in prices.
Meanwhile interest rates are down and coming lower.
Oil is down from over 140 to 47.62 and probably going to under 40
Fertilizers are down.
Things could be worse.