New Zealand dairy prices down

Fonterra milk prices slump, NZ dollar down

Prices at Fonterra's latest dairy auction have slumped in the wake of fresh electoral uncertainty in Greece and an oversupply of milk on the world market..

Radio New Zealand,

17 May, 2012

The average price was down 6% overnight on Tuesday, taking losses in the past year to 40%.

Prices for New Zealand's biggest export earner are now back at levels last seen at the tail-end of the global financial crisis in August 2009.

The dairy cooperative's Global Dairy Trade-Weighted Price Index fell to an average selling price of $US2618 per metric tonne, its lowest level since August 2009.

Whole milk powder prices fell by almost 9% on average. Skim milk powder prices were slightly more resilient, falling by about 5.5%. However, Anhydrous milk fat prices crashed by almost 12%.

Fonterra says the latest falls come in the wake of record production from New Zealand farmers and higher supply from rival countries.

BNZ economist Doug Steel says more milk is a factor, but fresh jitters in the world economy are increasingly spooking buyers.

The dollar has fallen to a fresh five-month low of US76.7 cents amid more signs of political uncertainty in Greece and falling dairy prices.

Mr Steel says the dollar's fall will offset some of the drop in dairy prices, but will not be enough to prevent a significant cut to farmers' incomes next season.

Farmers need to budget – federation

Federated Farmers dairy chair Willy Leferink says farmers are starting to factor in a large fall in milk payouts and are adjusting spending plans accordingly.

Mr Leferink is expecting a further drop in Fonterra's forecast milk payout for this season, which currently sits at $6.35 per a kilo of milk solids, with dividend payments on top of that.

He says farmers need to budget for a further big drop in the opening forecast for the new season, starting in June.

Mr Leferink says Fonterra is expected to announce its opening forecast for the new season at the end of May and is picking an opening milk price of about $3.70 a kilo. He says the opening price is usually about 65% of the final payout for the season.

On the positive side, the falling New Zealand dollar will ease some of the pressure on dairy prices, he says.