20 Jan 2016

Banks cut milk price forecast

5:26 pm on 20 January 2016

Retail banks have cut their milk price forecasts for the current season after another fall in dairy prices.

At the second auction of the year, the average price dropped 1.4 percent and the key whole-milk powder price fell slightly to $US2188 - a far cry from the $US3000 or more that farmers need to break even.

No caption

Photo: 123rf.com

ASB Bank has slashed its forecast by 50 cents to $4.10/kg of milk solids, while Westpac has lowered its forecast to $4.20/kg.

There was unlikely to be any major price rise before the end of the current season, ASB Bank rural economist Nathan Penny said.

"With over 60 percent of this season's volumes sold, we trim our milk price forecast."

"In effect, we defer the farm-gate benefits of dairy price recovery to next season for which we stick with our $6.50/kg forecast," Mr Penny said.

The state of the Chinese economy - and with it dairy demand - could mean the bank lowering its forecast again, he said.

Mr Penny expected Fonterra to follow suit and cut its forecast from the current $4.60/kg.

The latest auction reinforced the bank's call for further interest rate easing by the Reserve Bank.

"We expect two further cuts in June and August 2016, taking the OCR down to 2 percent," Mr Penny said.

Get the new RNZ app

for ad-free news and current affairs