Skim milk powder prices drop

Skim milk powder prices have now fallen by 30 per cent over the last four auctions. Photo / NZME.

Whole milk powder prices, which are central to Fonterra's farmgate forecasts, showed signs of levelling off at the latest GlobalDairyTrade auction, but competition from big suppliers in the United States and Europe saw skim milk powder prices fall sharply.

Overall, the GDT price index dropped by 3.5 per cent since the last auction in mid-April, but the whole milk powder price eased by just 1.8 per cent to US$2386 a tonne.

Skim milk powder fared worse, the average price dropping by 7.5 per cent to US$2048 a tonne. Skim milk powder prices have now fallen by 30 per cent over the last four auctions.

The drop in the skim milk powder price is likely to hit New Zealand's second biggest co-operative, Westland Milk, hard. The Hokitika-based co-operative last month cut its forecast payout for the season to $4.90-$5.10/kg of milk solids, based on very low powder prices.

Fonterra's forecast for the current season, which ends on May 31, is $4.50/kg MS. The co-op will issues its forecasts for 2015/16 late this month.

There was little in yesterday's auction to change views as to the likely Fonterra milk price for 2015/16, with most forecasters expecting it to come in at about $5.70/kg.

ANZ rural economist Con Williams estimates that at around that level, farmers would be operating at a 50c to $1.50/kg loss over 2015/16, which suggested seasonal finance requirement of $1.85 billion over the course of the season.

"It all comes back to the milk price, essentially," Williams said. "How low and how long does it stay where it is? That's the nuts and bolts of it.

"Banks will look to support their customers over 2015/16 season, but if we have another low or break-even season in 2016/17, it becomes different." At yesterday's auction, prices for all products fell, with the exception of cheddar, which gained 9.1 per cent to US$3012 a tonne.

Some skim milk powder offerings either did not receive a bid or did not trade higher than the opening price offered, Mike McIntyre, head of derivatives at First NZ Capital said.

The volume of product traded on GDT was 7 per cent greater than the previous auction, with 27,639 tonnes of product changing hands.

"It's a buyer's market for skim milk powder at present with strong competition between New Zealand and European suppliers who are operating in the Asian and Middle East markets," said AgriHQ dairy analyst Susan Kilsby.

Before last night's auction New Zealand-sourced skim milk powder was trading at a premium of US$100-US$200 tonne over Europe and the US but the auction result pulled New Zealand-sourced product below both competitors.

Europe remains the focal point for New Zealand with reportedly aggressive selling into key regions, such as North Africa, Middle East and Asia.

More skim milk powder is finding is way on to markets because of Russia's ban on the import of dairy products from some Western countries as it tries to promote its own domestic dairy sector.

"This pressure is unlikely to abate in the near-term with recent reports suggesting Russia will extend its import ban until at least the end of the year and wants to be self-sufficient in milk supply within the next 7-10 years," ANZ said.