20 Nov 2018

Dairy prices for farmers predicted to fall further

1:37 pm on 20 November 2018

Current dairy prices for farmers are unlikely to last, according to analysts.

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There is an increasing pressure on the dairy industry, mainly due to weaker dairy prices around the world, according to an analyst. Photo: 123RF

Fonterra is predicting a final price of between $6.25 and $6.50, when the season wraps up next year.

That is a reduction from earlier forecasts.

But it might still be too high, according to Mark Lister, who heads private wealth research for Craigs Investment Partners.

He said there was an increasing pressure on the industry, mainly due to weaker dairy prices around the world.

"We've seen slippage in the global dairy trade auction results," he said.

"That's partly due to more supply [of dairy products] coming on line from many parts of the world.

"Secondly, the New Zealand dollar has been very strong."

Fonterra milk truck

Fonterra is forecasting a payout between $6.25 and $6.50 a kilo of milk solids. Photo: RNZ / Rebekah Parsons-King

Figures put the New Zealand dollar lower than it was earlier this year but still 4 cents up on its level of early October when measured against the US dollar.

That higher dollar made New Zealand exports more expensive for people overseas to buy.

Mr Lister said those two factors would make it harder for Fonterra to sustain its latest predictions.

He was not making a formal declaration but thought $6 would be a realistic figure.

"This might be lower than people have come to expect over the past six months but is still not too bad relative to history."

Another analyst, Mark Brunel of OMF, produced a still lower forecast of $5.80.

He noted the volume of production worldwide would put downward pressure on prices, with output from the New Zealand industry up 6 percent and US production up 1 percent in the year to date.