Milk prices are tumbling closer to five-year lows, with Labour’s finance spokesperson Grant Robertson describing the decline as an “economic black hole” of almost $7 billion.
Dairy prices fell 3.6 per cent at Fonterra’s latest GlobalDairyTrade auction overnight, the third decline in a row.
The average price was US$2620 ($3455) a tonne, with the index now just a hair away from the five-year lows reached in December.
Farmers are already under a lot of pressure, with a slump at the previous fortnightly auction pushing many below the break-even point for the season.
Analysis firm AgriHQ has cut its forecast farmgate milk price for the season by 3c to $4.51 per kilogram of milk solids, well below Fonterra’s $4.70 forecast.
Robertson said the 51 per cent fall in milk prices since the February 2014 peak meant farmers were facing a large fall in income.
“If the price keeps falling or even stays where it is, Fonterra’s payout will be significantly lower than forecast and the economic black hole even bigger.”
He said the fall showed National’s failure to diversify away from a “one-dimensional economy” was hurting the country.
“Despite promising to rebalance the economy they haven’t even got out of the starting blocks,” he said.
AgriHQ dairy analyst Susan Kilsby said the auction results, a weaker commodity price outlook and a firmer New Zealand dollar were equally responsible for the firms’ downgrade.
“Growth in global milk supply is beginning to slow as farmers respond to lower milk prices but it will still take some time before markets are back in equilibrium,” she said.
Fonterra’s March milk production figures, released earlier this week, show milk intake for the first 10 months of the season was up 1.1 per cent.
Kilsby said it would take a very sharp fall in the volume of milk collected during April and May to reach Fonterra’s forecast volume of 1,551 million kg of milk solids.
She said it was good to see the 4.3 per cent drop in whole milk powder prices, New Zealand’s key export, was not as large as it had been in previous auctions.
However, that was partially offset by a larger drop in the skim milk price of 7.8 per cent.
Butter prices were also weak, down 6.6 per cent. However, butter milk powder rose 2.1 per cent, anhydrous milkfat rose 2.3 per cent, and cheddar rose 2.7 per cent.
158 bidders took part in the auction, up 21 per cent, with 108 winning bidders.
The New Zealand dollar was once again unaffected by the decline, recently trading at US75.87c.
Westpac senior market strategist Imre Speizer said weakness in the greenback had dominated currency markets overnight, and only a major fall in milk prices would have had an impact.
“There was some speculation and chatter that it would be a bigger fall in the realm fo 8 to 10 per cent, so if anything it was a small positive to the Kiwi dollar,” he said.
Source: Stuff
