18 Nov 2015

Dairy prices tumble 8 percent

3:37 pm on 18 November 2015

Dairy prices have fallen for a third consecutive auction, with the average price down 7.9 percent at the twice monthly global auction.

Friesian cow.

Dairy prices fell again in the overnight auction. Photo: RNZ / Alexander Robertson

The all-important whole milk powder price, on which Fonterra bases much of its farmer payout, was down 11 percent to $US2,184 a tonne.

The price rebound of more than 60 percent through September and October looks to be a distant memory, and hopes of some improvement in payouts have dimmed.

All products sold at the auction, with the exception of butter, fell in price.

Skim milk powder, another important product, dropped by 8 percent to $US1,851.

There were 141 bidders in the auction.

Analysts' forecasts for milk payouts have been slashed after the price drop.

Westpac, ASB and BNZ have made cuts to meet Fonterra's forecast of $4.60 a kilo of milk solids or below.

Westpac senior economist Anne Boniface said to meet Westpac's revised forecast of $4.50, whole milk powder needed to rise closer to $US3,000.

"If demand remains weak, or weakens further and we don't get as much of a hit from the El Nino weather pattern to production as we are anticipating, then we could see prices lower than what we are currently expecting," she said.

On Monday Fonterra increased its full year forecast earnings by 10 percent but has left its forecast farmgate milk price unchanged.

The dairy co-operative said then that earnings would rise to between 45 and 55 cents a share, up from an earlier forecast of 40c to 50c.

Chair John Wilson said that increase reflected the strength of the three months ended in October.

The company recently shed 750 jobs as part of a strategic review to reduce costs in the face of low global dairy prices.