7 Aug 2013

Milk price decline expected to accelerate

7:00 am on 7 August 2013

Rabobank dairy analyst Hayley Moynihan says the Fonterra contamination scare is likely to accelerate a decline in milk prices which had been expected to happen later this year.

Ms Moynihan said it was too soon to predict the extent of the impact of the scandal on milk prices, but they could fall by up to 15% in the short term.

However, she said prices for whole milk powder, the benchmark for New Zealand dairy products, had been expected to fall by 20% by the end of the year even before Fonterra's news broke.

"At Rabobank, we were expecting prices to ease the closer we got through to Christmas, because more supply was becoming available," Ms Moynihan said.

"We may just see a more dramatic easing in prices, if buyers are particularly sensitive to this issue."

Forward contracts from the Fonterra auction, covering the peak of the New Zealand production season in spring, would be closely watched because they gave the best guide for future pricing, she said.