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Fonterra’s GlobalDairyTrade auction prices hit five-year low


A screen from the GlobalDairyTrade auction website showing recent trends.

Dairy prices have fallen to the lowest in over five years following Fonterra’s GlobalDairyTrade auction overnight.

Prices were down 3.2 per cent, making it the fourth decline in a row.

The average price was US$2515 (NZ$3328) a tonne, compared to US$2620 at the previous fortnightly auction.

Analysis firm AgriHQ has cut its forecast farmgate milk price for the season by 1c to $4.50 per kilogram of milk solids, matching Fonterra’s recently revised forecast.

AgriHQ dairy analyst Susan Kilsby said the fall in milk powder prices at the May 5 auction was the main driver behind the drop in the price index.

The trade-weighted GDT Price Index is now at its lowest point since August 2009.

Skim milk powder suffered the largest drop, falling 7.5 per cent, but Kilsby said this still put it above the competition.

“Despite the sharp fall in price Fonterra supplied, skim milk powder still traded at a higher price than equivalent product offered by the European dairy company, Arla Foods,” she said.

Kilsby said there was strong competition between New Zealand and European suppliers operating in the Asian and Middle East markets.

“A better than expected end to the 2014-15 milk production season means New Zealand dairy companies still have some current season products to sell, while European milk production is heading towards its seasonal peak,” she said.

The volume of product traded overnight was 7 per cent greater than the previous auction and the number of successful bidders increased by nine to 117.

“The increase in the number of companies buying product on GDT indicates demand is beginning to improve but this increase in demand is not yet reflected in the prices,” Kilsby said.

New Zealand’s key export of whole milk powder dropped 1.8 per cent while butter milk powder plummeted 14 per cent and butter dropped 0.8 per cent.

Cheddar rose 9.1 per cent.

The auction attracted 144 bidders.

Farmers have a tough six months ahead after Fonterra cut its forecast for the 2014-15 season at the end of April from $4.70 a kilogram of milk solids down to $4.50.

The forecast price is the lowest since 2006-7 when it was $3.87 (but with a dividend of 59c for a total $4.46), and lower than when the great financial crisis hit in 2008-9 when the total payout plus dividend was $5.20.

The New Zealand dollar was unaffected by the poor result, trading at US75.58 cents, up slightly from US75.45c at 5pm on Tuesday.

BNZ senior market strategist Kymberly Martin said this was because of activity happening elsewhere in the world, particularly the rebound of the Euro against the US dollar.

“New Zealand was a little bit on the periphery,” she said.

Waikato Federated Farmers dairy chairman Craig Littin said the result was not unexpected.

“I think farmers are getting used to the way the global milk market is at the moment. We have just got to ride this out.”

Farmers Littin had talked to were trying withstand the fall in the market the best they could, he said.

“I don’t think we have got a lot of options, it’s all we can do.”

Waikato Federated Farmers president Chris Lewis said the regional economies were suffering as a result of the New Zealand’s high dollar and high interest rates.

“While they think they are doing it for the Auckland market, it is killing off the rest of the regional economy and they can’t use it as an instrument to tackle the Auckland market and make the rest of the country suffer.”

Farmers were suffering with low dairy product prices and surveys showed that every dollar a farmer gets is distributed nine times over and Lewis questioned if the country was headed for another recession.

“We would like to see some leadership from the Reserve Bank. They have been saying the same old stuff for the last 10 years and it has not worked. The economy really needs a reserve bank that’s on top of their game.”
ASB Economics expects the price to remain low for the next two to three months before beginning to lift.

This was due to New Zealand production experiencing a second win from modest drought impact and production forecast downgrades at the start of the year soon turning to forecast upgrades.

At the same time, milk demand is scarce, with the Chinese economy struggling as of late.

ASB has downgraded its milk price forecast for next season to $5.70 a kilogram compared to $6.20 previously.

Source: Stuff.co.nz


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