fbpx
Print this page
Thursday, 08 November 2018 13:29

Dairy prices fall 2% at auction

Written by  Doug Steel, BNZ senior economist
Doug Steel. Doug Steel.

Dairy prices continue to track lower, broadly in line with expectations on the day. 

The GDT Price Index is 12.3% below a year ago. Price declines this season have been orderly but persistent.

Wholemilk powder prices fell 2.9% with an average price of $US2,655/T. There were small declines in most other products, the exception being skim milk powder which posted a 1.2% rise. Nothing too dramatic in what was an unusually long auction of over 3 hours compared to the norm of around 2 hours.

Another small price decline adds downside risk to Fonterra’s milk price forecast range of $6.25 to $6.50. Likewise for our $6.30 view. We’ll see if Fonterra provides any update on its milk price view at its AGM tomorrow, we don’t expect any change so soon after the previous forecast update in October. A generally lower NZD is helping, but not enough to fully offset weakness in international prices. If international prices do not show any improvement from current levels then the season’s milk price is likely to come in below current forecasts. Indeed, ongoing price declines raises the prospect of this season’s milk price slipping below $6.  

From a macroeconomic perspective, this is all consistent with our thinking that NZ’s terms of trade is unwinding from its recent record high and will contribute to a widening in the current account deficit.  For the RBNZ, wholemilk powder prices are below its $US3,000/T medium term assumption. Dairy prices remain one for the dovish column come Thursday’s MPS, against the likes of stronger than expected GDP and inflation.  

Ongoing milk supply expansion in the EU, US and a strong start to the NZ milk season are key factors behind the fact that the GDT Price Index has not posted a positive result since the end of last season in May. GDT volumes at this auction were 20.9% higher than a year ago, reflective of the very positive start to the NZ season with good grass growth and cows are in good condition. Also, latest M Bovis tests have shown minimal new cases of the disease and some recent rain is keeping the threat of a looming El Nino weather pattern at bay for now (but these things remain on the watch list over coming months).     

Slower economic growth indicators in China, concern around US-Chinese trade relations, and wobbly equity markets continue to raise questions around the outlook for demand. Meanwhile, a stronger USD and a slump in oil prices are not helpful, likewise lower international grain prices.

More positively, a winding down of the EU’s skimmilk powder stockpile and the prospect of slower EU milk production ahead on tighter feed supplies seems to have helped at least stabilised skimmilk powder prices over recent months, while drought conditions in Australia continue to hurt milk production there.    

• Doug Steel is a BNZ senior economist.

More like this

$10.25/kgMS milk price now in play

A significant rise in Global Dairy Trade (GDT) auction last week has prompted one bank to lift its forecast milk price for the season to above Fonterra's mid-point.

Featured

Dr Mike Joy says sorry, escapes censure

Academic Dr Mike Joy and his employer, Victoria University of Wellington have apologised for his comments suggesting that dairy industry CEOs should be hanged for contributing towards nitrate poisoning of waterways.

People-first philosophy pays off

The team meeting at the Culverden Hotel was relaxed and open, despite being in the middle of calving when stress levels are at peak levels, especially in bitterly cold and wet conditions like today.

Farmer anger over Joy's social media post

A comment by outspoken academic Dr Mike Joy suggesting that dairy industry leaders should be hanged for nitrate contamination of drinking/groundwater has enraged farmers.

From Nelson to Dairy Research: Amy Toughey’s Journey

Driven by a lifelong passion for animals, Amy Toughey's journey from juggling three jobs with full-time study to working on cutting-edge dairy research trials shows what happens when hard work meets opportunity - and she's only just getting started.

National

Machinery & Products

JDLink Boost for NZ farms

Connectivity is widely recognised as one of the biggest challenges facing farmers, but it is now being overcome through the…

New generation Defender HD11

The all-new 2026 Can-Am Defender HD11 looks likely to raise the bar in the highly competitive side-by-side category.