Anhydrous milkfat and butter - both reference points for the milk price - were down 2.2 per cent and 2.6 per cent respectively.
Fonterra has so far kept its farmgate milk price quite high at $9 a kg of milk solids for the current season, but today’s result may cloud the outlook.
Stuart Davison, NZX’s dairy insights manager, said the result had “put a pin” in expectations that the market was going to flat-line through the coming months.
“A 3.8 per cent GDT index decline will be a bit of a shock to a few this morning,” he said.
“The direction was somewhat expected, however the scale of the movement was not,” he said.
“This result has dismissed the idea that the market has ‘bottomed out’; and provides more evidence that there is more downside risk apparent than some are willing to accept,” Davison said.
“As with all of these punchy GDT results, this auction will cause a stir in the market, I expect to see a few more market bears to come out of their caves after this.”
A stand-out result from this auction is the large total purchases from North Asia - almost double the volume of dairy compared to the next largest purchasing region.
Davison said this would spur the market into expectations that things are returning to normal in the dairy world.
He cautioned that levels of demand at today’s auction may not have been a true reflection of demand.
Westpac senior agri economist Nathan Penny said he was still happy with his milk price forecast, which sits at $8.75 a kg.
“I’m still happy with where I am at, particularly given that our forecast is slightly lower [than Fonterra’s],” Penny said.
“I have a sneaking suspicion that it might be end-of-year lack of interest,” he said.
“It’s really a case of waiting for the new year to confirm whether this is a price fall or a factor of the time of year.”
NZX’s Davison said the result would lead to a major shift in the forward view of the whole milk powder market.
“I would expect to see US$250/tonne to be shaved from the January 2023 futures contract rather rapidly,” he said.
