22 Nov 2017

Farmers nervous as milk prices slide

3:18 pm on 22 November 2017

Dairy farmers are disappointed and nervous following the latest fall in global prices, after hoping the market would improve.

no caption

Photo: 123RF

The price of whole milk powder is now at its lowest level since October last year, following a 2.7 percent drop at the global dairy trade auction to $US2778 a tonne.

Whole milk powder prices help determine the payout to farmers, and most need about $US3000 a tonne to break even.

Federated farmers dairy chair Chris Lewis said he was not expecting another fall in prices.

"Again it's dropped, I was quite disappointed actually. I was hopeful it was going to be level pegged or even one percent up."

Mr Lewis said with the recent news from Fonterra that milk production was up three percent in October, the price drop made more sense.

"I guess buyers of product had comfort that supply wasn't going to be an issue, it's a classic case of supply and demand."

The recent auction was worrying, he said.

"Farmers will be a little bit nervous and anxious. It's not a big decline ... but I think at the moment farmers will keep a watching brief on what happens.

"For the last few months when it did increase and the dollar dropped farmers felt a bit more comfortable of the direction it was heading."

Dairy farmers will be hoping the fundamentals of the global dairy market are strong and the US dollar stays below 70 cents, he said.

ASB has dropped its forecast by 25 cents to $6.50 kg/ms, and analyst are expecting Fonterra will revise its forecast payout down from $6.75 before the end of the year.

Over the past three years of volatility dairy farmers have learnt some lessons, said Mr Lewis.

"Most farmers, including myself, are taking a pretty pragmatic view of the world. All we're trying to do is produce a sustainable product."

This time last year milk prices were bouncing back from the lows of the dairy downturn, and farmers were feeling more upbeat about the outlook.

"The optimism is still there it's just that people thought it'd be very sustained and it'd level off.

"Hopefully going forward, as long as prices pick up again over that $3000 dollar mark for whole milk powder - we'll be in a sweet spot."