Days to the General Election: 39
See Party Policies here. Party Lists here.

Prices of dairy products experience largest fall since January; 'cooling off period' seen

Prices of dairy products experience largest fall since January; 'cooling off period' seen

By David Hargreaves

Dairy prices had their biggest overall drop since January, as the recent strong rally came to a halt in the overnight GlobalDairyTrade auction.

Skim butter milk powder was the only product category to rise in price as the GDT Index dropped 3% - though to put it into some perspective, that just brought average prices back to where they were in mid-August.

The key whole milk powder (WMP) price fell 3.8% to US$2681 per metric tonne. Recent auctions have seen the longer-dated contracts tend to do better, but last night the longest dated one for delivery in April next year fell by 7.2%.

ANZ agri economist Con Williams said the overnight auction result disappointed, but wasn’t surprising with buyers recently becoming more cautious.

"Increasingly it looks like there will be a cooling off period as the Chinese FTA buying window closes and the market awaits further information on supply dynamics," he said.

But despite this, he said ANZ economists continued to believe that the recent rally in prices "has more durability" than seen in recent years.

"This is due to milk supply actually contracting in all major export markets bar the US, very tight New Zealand inventory levels pushing demand on to GDT and recent demand at higher prices being more broad based than China alone."

Giant dairy co-operative Fonterra recently raised its forecast milk price for farmers in the current season to $5.25 per kilogram of milk solids, which if achieved would be the highest in three years - though still below the around $6 regarded as sustainable.

Williams said ANZ economists continued to forecast a "high-$/4kg MS milk price view" for the current season.

"This is obviously below Fonterra ($5.25/kg MS), but in line with other dairy processors current forecasts ($4.60-$5.00/kg MS).

"After last night’s auction current market indicators have the milk price around the low-mid $5/kg MS mark.

"If recent prices, which look more durable than this time last year, can hold steady into year end this should be easily achievable. But until then we prefer to take a cautious approach."

ASB economists have long since taken the most 'bullish' view of prospects for this season among major bank economists and were forecasting a milk price of $6 when some others were suggesting a sub-$4 price was possible as recently as July.

In again re-affirming that $6 forecast today ASB senior rural economist Nathan Penny said the ASB economists were expecting dairy prices to "track largely sideways over coming auctions" as markets wait for further confirmation of weakening NZ production.

"In our view, we expect production to continue to weaken and thus for prices to lift again later in the season.

"On that basis, we look to NZ spring data that supports or challenges our view that global production will weaken further over 2016.

"Data so far are consistent with our view. NZ production for August was 3% lower than August 2015; with production for the season to date 2.4% lower than over the same period last season. Meanwhile, July EU production fell 1.3% compared to July 2015."

On September 21 Fonterra increased its 2016/17 forecast Farmgate Milk Price by 50 cents to $5.25 per kgMS on the back of the recent global price gains. When combined with the forecast earnings per share range for the 2017 financial year of 50c to 60c, the total payout available to farmers in the current season is forecast to be $5.75 to $5.85 before retentions.

See here for the full dairy payout history. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


So far we are on track for a repeat of last season.
Fonterra gets all excited and talks things up early in the season, then is forced to slash the payout after christmas.
This season the beef price will be much lower so cows and all the beef calves that dairy farmers are going to flood the market with won't be worth much either.

Totally agree here, we are now going to see a retreat of prices similar to last year, WMP stocks are still abundant......maybe a $4.20 payout but lower beef prices will make it on par with last season

You know , all commodity prices have been in constant turbulence over the past 36 months and still are all over the place. There is absolutely no certainty with any of them from Aluminium to foodstuffs to Zinc .

People and businesses exposed to these market fluctuations should do basic financial modelling and understand what their break-even price is , and what their best case and worst case scenarios .

And above all manage debt prudently , because add an interest rate increase to the mix and you're stuffed

there wont be any interest rate rises precisely because of commodity prices. The central banks are doing everything they can to prop UP commodity prices ... if they cant keep producers solvent say goodbye to everyone's standard of living.

I've been listening to Trump supporters too much and become a conspiracy theorist. Don't look at the prices achieved at the GDT auctions, look at the changes in volume offered for sale.

I reckon when Fonterra know that prices are going to fall, the volume drops. The volumes offered for sale range from 13,000t to 59,000t. When prices were at bottom, (dec 15 to June 16, volumes were 22k- 18k tonnes/auction, then shot up to average around 35k tonnes /auction since then.

Coincidence? I think not....

What?! Fontera attempting to game the auction and price results by influencing the amount of available product. Surely not.

Worse still, what they sell is a perishable product, you can only hold back product for so long before you need to release it and flood the market with your backlog and current inventory.

But who cares, I hear a new shiney office in Auckland is all the talk anyway.

Hi all, one of my leasees has just had his number pulled by fonterra for being a non compliant , does anyone know of anybody else who this has happened to??. Left with a fonterra milk price lease and no milk being collected...

Your access to our unique content is free - always has been. But ad revenues are under pressure so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.

Days to the General Election: 39
See Party Policies here. Party Lists here.