International dairy prices drifting down

Milk prices are still generating good profitability for farmers. Photo / Sarah Ivey

International dairy prices fell for a seventh consecutive time in Fonterra's latest online auction.

The average price for a basket of products in Fonterra's online auction fell 2.1 per cent yesterday.

The price of skim milk powder across all contracts was down 6.2 per cent on the previous event and anhydrous milk fat was down 11.2 per cent, although whole milk powder increased 1.1 per cent.

BNZ economist Doug Steel said that generally international dairy prices were drifting lower.

"There's still some encouraging signs in a sense that they're not falling that sharply for one, and two, given what's been going on they've been holding in there quite well in the context of the big amplification in global growth fears," he said.

"As we sit today it's still a positive story, dairy prices have eased internationally but they're still well above their average over the last 10 years and that's still generating good profitability for farmers in New Zealand."

It was somewhat encouraging that the price of whole milk powder in the auction had lifted, with later delivery product continuing to inch higher and trade at a premium to shorter dated product, Steel said.

"And in fact that premium's getting wider," he said. "So that gives you some encouragement that prices aren't too far away from the bottom."

The consensus forecast for global economic growth was still quite solid, he said. "But there's just so much risk around that that growth that's sort of okay at the moment might fall away, that's the big concern and what happens around the European debt situation in particular."