18 Mar 2015

Dairy prices could drop even further

2:38 pm on 18 March 2015

A market analyst says prices on the global dairy trade auction could fall further, after a sharp drop in the over night auction.

Calves on a Waikato dairy farm.

Photo: AFP

That will put further pressure on Fonterra's forecast milk payout to farmers, which is due to be revised next week.

Prices fell 8.8 percent from the last auction a fortnight ago, to US$3136 a tonne.

The average price for the key commodity, whole milk powder, dropped by almost 10 percent to US$2928 a tonne.

Anchor Milk. Fonterra products

Photo: RNZ / Diego Opatowski

AgriHQ analyst Ivan Luketina said there was likely to be a continued slight decrease in prices.

"The main driver of that is going to be that buyers will be more confident of the supply that they're going to see throughout the rest of the season.

"Fonterra have added volume to their GDT forecast for the rest of the season and some of the rain over the past week or so will also add a bit of confidence that production might not decrease as much as had previously been expected."

Mr Luketina said a drop in Fonterra's forecast milk payout would not come as a surprise.

"In February it looked as though things were on track for that $4.70 payout but Fonterra really needed auctions to continue roughly on that trajectory and it now looks as though they won't."

"AgriHQ are now forecasting $4.60 so that takes into account the futures market for the rest of the season so we are expecting a ten cents decrease to that price [Fonterra's price]."

Federated Farmers national dairy chair Andrew Hoggard said farmers will be disappointed to see the drop in prices, however the results need to be put into a wider perspective.

"The last result everyone was saying they should have lifted it to $5, they were obviously being cautious so one hopes that caution is paid off, I mean this is still just one result and you know you shouldn't just go off one result, you need to be looking at a trend of following results too," he said.