Milk price forecast trimmed

Westpac has downgraded its forecast farmgate milk price payout for 2017-18 from $6.50 to $6.20 after a 3.5% drop in this week's GlobalDairyTrade auction.

Prices were down for four of the eight products on offer, with whole milk powder prices down 5.5% on the previous auction and butter down 3.6%.

Westpac economist Shyamal Maharaj said the decline in milk product prices over recent auctions, despite weaker domestic production, suggested softening of demand.

The bank expected China's growth to slow next year as the government focused on economic rebalancing, which was likely to crimp demand for a range of commodities.

Westpac's forecast assumed dairy auction prices for whole milk powder would fall by 12% between now and April next year.

The bank has also announced its milk price forecast for the 2018-19 season, expecting the payout to increase to $6.50 on the basis of a revival in the Chinese economy from late 2018 and supported by a lower average exchange rate over the season.

ASB senior rural economist Chris Tennent-Brown said the weakness posed a down side risk to ASB's $6.75 Fonterra forecast, which is also where Fonterra's forecast sits.

A slight 0.3% dip in last month's ANZ commodity price index was largely attributable to softening dairy prices.

Prices were down 3.1% courtesy of rising milk supply in the United States and Europe. Butter prices fell 6.5% as the supply-demand balance improved in Europe, and higher farm-gate prices and better weather conditions were encouraging more milk production in Europe.

Combined with low seasonal demand after November and higher retail prices moderating consumption, butter prices had come off record highs, ANZ senior economist Phil Borkin said.

Skim milk powder prices had been pressured by similar dynamics, as well as Europe's intervention scheme closing in September and uncertainty on its future settings during next year's seasonal peak.

Whole milk powder prices slipped 2.8% despite a slow start to milk supply for New Zealand's new season.

Chinese demand had been solid, but not spectacular, for the free-trade window. To absorb higher seasonal supplies, the slack had been taken up by Middle East and Southeast Asian buyers, but their price point had been lower than that of Chinese buyers.

Meat and fibre prices eked out a 0.8% increase. Beef prices performed better than expected through October, rising 1.7%.

Lamb prices had been supported by low New Zealand supplies and robust demand from the main markets.

Horticulture prices rose 2.8%, while a rise in log and wood pulp prices pushed the forestry group up 1.9%.