Dairy prices fell more than 10 per cent last month and further weakening is possible for New Zealand's biggest export sector, the ASB's commodity report shows.
Prices fell because of weak demand and more supply in international markets from Europe and the United States. The fall follows an 11 per cent
dip in November prices.
Last month, an increased payout to 14,500 dairy farmers was looking shaky and the latest drop adds to the uncertainty.
Dairy giant Fonterra had signalled a payout of $5.20 a kilogram for the year to next June after a $5-a- kg payout last year.
Dairy prices have been falling since last July although forward sales have partly cushioned the effect of falling prices.
The EU increased export subsidies on milk powder for the second month in a row and the US followed soon after with higher subsidies.
About 6 per cent of the world's supply of dairy products is traded around the world, a relatively small amount, so it does not take much extra supply to depress prices.
Prices for dairy and other farm products are coming off relatively high levels last year when farmers enjoyed their best profits in decades.
There are also concerns there may be a flood of butter and milk powder on to international markets from Argentina after the 29 per cent devaluation of the peso, making its dairy exports potentially more competitive.
- NZPA
