Falling kiwi some help as dairy prices keep dropping

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The falling value of the New Zealand dollar is offsetting some of the lower GlobalDairyAuction prices but not all of the gain will be captured in this season's payout.

Dairy prices were weaker than expected in the latest auction, falling 3.4%. The index is down 7.4% on an annual basis.

ASB senior rural economist Nathan Penny said the result was softer than indicated by futures pricing ahead of the auction, which had pointed to a modest rise.

The auction price fall was broad-based. Six of the seven products monitored by ASB posted falls. Anhydrous milk fat was unchanged.

The key product of whole milk power dipped 2.7% and was down 18.2% on the annual index.

Butter fell 5.9% but was still up 22.2% for the year. Skim milk powder was down 6.5% in the auction and 32.8% for the year.

Mr Penny said auction prices had now fallen for four consecutive auctions. In the period, overall and whole milk powder prices had dipped by about 10%.

At the same time, the global production outlook had firmed. In particular, European Union production was running well ahead of this time last year.

More recently, New Zealand nationwide production had rebounded from very wet weather, posting a 2.9% lift in October compared with October last year.

Mr Penny expected the rebound in production to come during summer and autumn.

''It seems New Zealand weather, and thus production, can turn on a dime.''

With higher production and a weak run of auction results, the ASB had trimmed its 2017-18 milk price forecast by 25c to $6.50 a kg of milk solids.

The New Zealand dollar was providing some offset to falling auction prices, he said.

In the same four-auction period, the dollar had dipped about 6% against the United States currency.

However, not all of the gain would be captured in this season's milk price calculation, Mr Penny said.