4 Aug 2011

Pace of dairy price decline slows

7:20 am on 4 August 2011

The falls in dairy prices that have marked trading so far this year appear to be stabilising, with a drop of just over 1% in Fonterra's twice-monthly global dairy trade-weighted index.

The latest Index average selling price of $US3,716 per metric tonne follows falls of 5% and 7% at the last two auctions, meaning prices have now fallen more than 6% since the beginning of the year.

That, coupled with the high value of the dollar, has meant significant reductions in returns for dairy farmers

But BNZ economist Doug Steel says the pace of decline has slowed and there may be some good news as long- term contract prices held firm.

He says prices contracted out to April next year are better than the current spot price, meaning New Zealand sales of dairy products will be at prices above the spot market and will support Fonterra's forecast overall payout for the 2011/12 season that has just got underway.

Fonterra is forecasting a payout to farmers of between $7.15 and $7.25 a kilogram of milk solids for the season that has just begun.

ASB says a US report notes a global slowdown is expected to affect demand but dairy product inventories are limited and unexpected problems could spark a sharp spike in prices.