Dairy prices showed signs of stabilising at the latest GlobalDairyTrade auction overnight, with the main price index slipping by just 0.6 per cent.
Farmers will take heart from a 3.4 per cent gain to US$2,804 a tonne in the price of wholemilk powder - the most important segment for local producers - at last night's auction. Overall, the GDT price eased slightly to US$3,000, down from US$3,025 a tonne two weeks ago.
Early this month, Fonterra cut its 2014/15 farmgate milk price forecast to $6.00 a kg of milksolids, down from an earlier forecast of $7.00, in response to sharp declines in the wholesale market.
ANZ Bank rural economist Con Williams said the auction showed that there were tentative signs of stabilisation in the markets, with four products registering declines and three improving.
Importantly, wholemilk powder showed the first signs of levelling out in two months.
"There was improvement across all contract periods, except for February," Williams said.
"However, the slope of the curve was only slightly upward pointing and combined with a 12 per cent fall in skimmilk powder prices only portrays of bargain hunting and consolidation as opposed to a strong recovery," he said in a commentary.
"A bounce back is required if Fonterra's current farm-gate milk price of $6/kg ms is to be achieved as there is still a material gap between this and the prices achieved in the last two auctions," Williams said.
ASB Bank rural economist Nathan Penny said it was difficult to draw many conclusions from the auction. "There are some very subtle hints of prices stabilising later in the season, but at the same time overall prices still fell," he said in a commentary.
Penny said ASB would maintain its forecast for the 2014/15 season at $5.80/kg of milk solids.
Federated Farmers said it was pleased to see signs of price stabilisation but warned that volatility was likely continue until well into the last quarter.
"Prices will oscillate around for the near term but we understand from various experts that prices are expected to rise in the later half of the season," Andrew Hoggard, Federated Farmers vice chairman, said.
"Whilst this result is pleasing, it is just one result, and the messages to farmers remain the same play it tight for this season," Hoggard said.
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At last night's GDT auction, skim milk powder prices lunged 12 per cent to US2,874 a tonne, while cheddar slumped 7.9 per cent to US$3,453 a tonne.
Butter milk powder fell 2.5 per cent to US$3,886 a tonne and rennet casein slipped 0.8 per cent to US$9,601.
Anhydrous milk fat gained 3.6 per cent to US$3,566 while butter rose 4.9 per cent to US$2,940 a tonne. Some 46,387 tonnes of product was sold, down from 48,380 tonnes two weeks ago.