Further declines in dairy prices at the latest GlobalDairyTrade auction early yesterday morning are casting doubt over Fonterra Cooperative Group's ability to meet its newly revised farmgate milk price for farmers and prompting concern that next season's price may also be weak.
The GDT price index fell 7.4 per cent at the auction, the third straight decline this year. The average price for New Zealand's key product, whole milk powder, sank 10.4 per cent to US$1,952 a tonne, its lowest since August 18.
Fonterra last week reduced its farmgate milk price forecast for the 2015/16 season to $4.15 per kilogram of milk solids, from $4.60/kgMS, citing a continued global imbalance between supply and demand. Following the auction, many dairy market analysts are now reviewing their forecasts for this season and next. Estimates in a BusinessDesk survey currently range from $4/kgMS to $4.32/kgMS for this season, and an opening price of between $3.75/kgMS and $6.50/kgMS for next season.
Prices are declining as European milk production continues to expand, while New Zealand's production may not be crimped as much by dry El Nino weather as earlier anticipated.
ASB Bank rural economist Nathan Penny lifted his expectation for New Zealand milk production this season, saying it would probably only decline 3 per cent compared with an earlier estimate of 6 per cent, with the threat of drought having abated.
