2 Oct 2014

Dairy prices plunge again

10:59 am on 2 October 2014

Dairy prices dropped sharply by 7.3 percent and benchmark whole milk powder prices plunged 10 percent in the latest international auction.

milk tanker

Photo: PHOTO NZ

The latest fall means milk powder prices have now more than halved since the start of the year.

The volume traded in the Global Dairy Trade auction overnight increased to 55,057 tonnes, as the New Zealand dairy season picks up.

Specialist agribusiness bank Rabobank predicts it could be well into next year before international prices show any real signs of recovery.

That is not something dairy companies and farmers want to hear as they consider whether already heavily pruned farmgate milk price forecasts for the current 2014-15 season will have to come down further in response to the global commodity price slump.

Hayley Moynihan.

Hayley Moynihan. Photo: SUPPLIED

In its quarterly dairy report, Rabobank says the current downturn is cyclical and those prices will pick up at some stage next year.

But its dairy research director for New Zealand and Asia, Hayley Moynihan, said milk price forecasts for this season remain challenging, unless there is an earlier-than-expected commodity price recovery, or an improved exchange rate.

"Milk production from all key parts of the world is continuing to expand strongly. Farmers have reacted very well to the high price signals they've received over the past 18 months and therefore milk's flowing strongly," she said.

"We don't see that slowdown in milk production really starting to happen until we get well into 2015 and, therefore, the market's unlikely to see prices move upwards and really tighten substantially until we get at least halfway through next year."

Ms Moynihan says the timing of any recovery will also depend on when two of the biggest markets, China and Russia, start buying again.

Dairy spokesperson for Federated Farmers, Andrew Hoggard, told Morning Report dairy payouts may dip further because of the falling prices.

He said some farmers will have to borrow more to get through this season.

Get the new RNZ app

for ad-free news and current affairs