10 Dec 2008

Slump in international dairy prices predicted

8:36 am on 10 December 2008

Westpac Bank economists are predicting further hefty falls in world dairy prices over the next few months as weak demand stemming from the global credit crisis coincides with a build-up in supply.

The bank's quarterly agribusiness update anticipates dairy prices will sink to 64% below peak levels by the end of this season.

The full impact will not hit farmers until next season, when Westpac predicts Fonterra's milk payout will drop to $5.30 per kilo of milk solids.

Fonterra recently lowered its payout forecast for this season to $6 per kilo of milk solids and Westland Milk Products has reduced its forecast below that level.

The company that paid the highest return last season, small Waikato co-operative Tatua, does not release its payout predictions.

Tatua chief executive Paul McGilvary said the company has also been caught in the price slide, although its lower exposure to the commodity trade has staved off some of the immediate impact.

Westpac Bank is also predicting further falls in international beef prices, and lower lamb prices next year after this season's recovery.

It sees export log prices, now sitting almost 12% above their 10 year average, climbing even further next year due to the huge fall in shipping costs and the lower New Zealand dollar