15 Apr 2014

ASB predicts fall in dairy prices

7:41 am on 15 April 2014

A bank is predicting Fonterra's forecast payout will drop this season by about 15 cents due to falling global dairy prices.

Fonterra is forecasting a record payout this season of $8.65 per kilogram of milk soilds but ASB rural economist Nathan Penny said the bank did not believe the dairy co-operative would be able to hold it at that level.

"We've seen dairy prices come off around 20 percent since the end of February in the Global Dairy Trade auctions, and we expect that may translate into a 10 to 20 cent fall in the farm gate milk price," he said.

ASB had revised its forecast down to $8.50 per kilo but believed milk supply would be up by 11 percent this season, which would offset the falling payout.

"They'll get a bit more in the hand from producing more, and a lower payout will take a bit away. But overall that should net off to be roughly even," Mr Penny said.

ASB believed prices could fall another 10 percent on the Global Dairy Trade auction through the middle of the year before starting to recover.