3 Sep 2014

Dairy auction prices sour further

9:49 pm on 3 September 2014

Dairy prices have nearly halved since February, after a further 6 percent fall in the international GlobalDairyTrade auction overnight.

Prices in the fortnightly dairy trade auction dropped to $US2787 per tonne of milk powder - the lowest point since July 2012 and down from $US5042 on 4 February.

Benchmark whole milkpowder prices fell 4.3 percent, butter milkpowder prices fell 12.9 percent and skim milkpowder tumbled 9.5 percent.

Dairy prices fell by 0.6 percent two weeks ago, boosting hopes they were stabilising.

However, Russian sanctions on European imports of dairy products have raised questions about where those products will go.

The volume traded in the auction surged to more than 57,000 tonnes, as the New Zealand milking season starts.

Rabobank senior dairy analyst Hayley Moynihan said the past two auctions had shown mixed results, and this latest fall was likely to have an impact on milk prices in New Zealand in the months to come.

She said it was likely to have an impact on prices on New Zealand supermarket shelves in the months to come.

"Typically a lag of anywhere between three and six months so, again, unlikely to see that happen until we get towards the end of the year," she told Morning Report.

"But as these prices persist, then there may be some impact."

Production quotas in Europe also came off next 1 April, and that would also have an impact, Ms Moynihan said.

Bank of New Zealand economist Doug Steel suggests Fonterra's milk payout to farmers this year could be about $5.50 per kilo of milk solids.

A payout at this level would take about $1 billion of revenue out of the economy, compared with last season.

The New Zealand dollar fell to its lowest level against the US dollar in six months after the dairy price fall, though the kiwi is still more than 2 cents higher than it in early February when prices peaked.

Around 10pm the the currency was trading at 83.18 US cents, up from the overnight low at 82.89 cents.

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