17 Jun 2015

Dairy prices fall for seventh time

1:41 pm on 17 June 2015

Dairy prices have fallen once again, but the rate of decline is more modest.

Milk at Pak n Save Kilbirnie.

Photo: RNZ / Alexander Robertson

The average price dropped 1.3 percent to $US2409 a tonne, the seventh consecutive fall.

A key price to farmers, whole milk powder, slipped 0.1 percent to $US2327, while skim milk powder dropped 0.2 percent to $US1978.

This leaves the dairy sector still waiting for signs of a turnaround in milk powder prices, in particular.

The biggest price drop was for anhydrous milk powder - almost nine percent.

But there were gains as well: butter milk powder prices increased by an average of 10 percent and cheddar cheese and butter also rose by more than two and three percent.

Rennet Casein gained more than four percent.

Treasury secretary Gabriel Makhlouf told Parliament's Finance and Expenditure Select Committee said the slump was worse than expected.

"While we anticipated continuing weakness in dairy prices in our forecasts, there is now a greater risk that prices could take longer to pick up with the recovery starting later this year or in early 2016, rather than the second half of this year as anticipated."

He said falling interest rates and the lower value of the New Zealand dollar would help offset the slump in dairy prices.

Dairy analyst with AgriHQ Susan Kilsby said there were some positive signs in the announcement, but nothing to indicate the expected price recovery would be immediate.

"The index prices were down at the auction overnight, but the specific whole milk and skim milk powder contracts that the NZX Futures market settles against, those contracts actually rose.

"That's for product that's actually being delivered in two months' time.

"So that does indicate we are seeing a little bit of firmness in the market for the nearer deliveries.

"But then on the other hand ahead of the auction we saw a flattening of the NZX Futures curve, meaning that the prices for products [for delivery] around Christmas have actually come back and it was really rhe reduction in that outlook that brought the reduction in the AgriHQ milk price for the 2015-2016 season back 14 cents to $5.50 a kg of milk solids.

"I mean, we do expect prices will gradually increase, but it's taking a while for milk production around the world to slow down and of course here in New Zealand, we had a strong finish to last season's milk production as well.

"Things are starting to turn, but it's taking time for their recovery."

Falling dairy prices led Fonterra to cut its forecast payout for the season just gone to $4.40 a kilo of milk solids, while it set a new season forecast of $5.25.

Other companies' opening forecasts range from $5.50 to $6 a kilo.

Ongoing dairy falls hitting rural economies hard - Labour.

The Labour Party said the ongoing falls in dairy prices were stripping billions of dollars from rural economies.

Finance spokesperson Grant Robertson said the price drops meant $13 billion would disappear from New Zealand's economy over this and next year - and small towns would bear the brunt.

He said the country relied too heavily on the dairy industry which was at the mercy of global trade prices.

"This is tough for farmers themselves who are going to be facing a big cut in incomes over this coming year, but it's the rural communities that rely upon those farmers who will really notice it.

"We're talking here about a town like Opotiki, in the Bay of Plenty. $30m will disappear from that town and that means jobs and other peoples' livelihoods at risks... That's a problem that will be felt right across New Zealand."