3 Feb 2016

World dairy prices drop sharply

12:05 pm on 3 February 2016

International dairy prices slumped further in the latest auction overnight.

no caption

Graphic: GlobalDairyTrade Ltd

The overall price index in the GlobalDairyTrade auction fell almost 7.4 percent to $US2276 a tonne.

The benchmark whole milk powder price dived 10.4 percent to $US1952 a tonne, the lowest it has been since August.

That price helps determine Fonterra's farmgate milk price which has recently been lowered to $4.15 per kilogram of milk solids in light of weak global demand and an over supply of milk.

Three other New Zealand dairy companies, Synlait, Westland Milk Products and Open Country, have lowered forecast payouts in the past month to between $4 and $4.45 - under the $5 figure most farmers need to break even.

Fonterra sign

Photo: 123RF

Westpac has forecast that Fonterra's current season payout will be $4.20 but chief economist Dominick Stephens said the overnight auction was a little weaker than expected and the forecast could fall again.

"There's a little bit of downside risk...we had been expecting some decline in milk prices with what's going on in global financial markets' concern about the rate of Chinese economic growth."

Westpac's $5.20 forecast for the 2016/17 season may also be in doubt, he said

"That was based on global milk prices rising to about $US2400 a tonne over the course of the next year."

"With prices currently below $US2000 a tonne, that is looking pretty distant, and we are staring to wonder if that $5.20 even is too high."

"It is quite possible now that we will be looking at a third year in a row for dairy farmers, where the farm-gate milk price is under $5 per kilogram of milk solids."

Get the new RNZ app

for ad-free news and current affairs