Dairy bids lack spirit of season

Farmers have woken up to Christmas bad news with dairy prices falling by 3.9 per cent in the latest auction, to the lowest level since October last year.

The average price per tonne on the Globaldairytrade (GDT) index was US$2969 (NZ$4247).

The key price indicator and major export, whole milk powder, was US$2755, a drop of 2.5 per cent.

Dairy product prices fell across the board.

The auction, held overnight on Tuesday, was the first following Fonterra’s decision two weeks ago to drop its payout forecast for the 2017-18 season by 35 cents to $6.40 per kilogram of milksolids.

Federated Farmers dairy group chairman Chris Lewis said it was not the end to 2017 that farmers wanted and was a sign of how volatile milk prices were, and how difficult it was for forecasters.

‘‘It’s like predicting the weather. I think these forecasters would be more accurate at picking my Lotto numbers this Saturday,’’ Lewis said.

‘‘It confirms Fonterra’s forecast. Sometimes farmers wonder if GDT is the farmer’s friend or not or are the traders benefiting from its availability.’’

Farmers should brace for an even lower Fonterra payout, with Westpac analyst Shyamal Maharaj plumping for $6.20/kgms and Agrihq predicting $6.18/kgms.

Maharaj said demand had been showing signs of easing over the past few months, despite concerns of lower production coming out of New Zealand.

ASB said it was sticking with its forecast of $6.50, but would review it in the new year.

‘‘It’s noticeable that the weak period for prices coincided with butter prices retreating from their record highs,’’ ASB said.

‘‘This indicates that price resistance from consumers may have kicked in, and weakened overall dairy demand.’’

Lewis, who farms in Waikato, said farmers would also feel under pressure as they dealt with very dry conditions. Rain had fallen but it had been very patchy.

‘‘I’ve received half a millimetre but it’s been very localised. Just a few kilometres away from me it was pouring down, whereas here – nothing. It’s very frustrating to watch these heat showers from a distance.’’

The previous auction two weeks ago offered a slight reprieve as the overall index rose 0.4 per cent, following four consecutive declines.

Analysts were expecting prices at this week’s auction to lift because the hot, dry conditions in New Zealand would reduce milk supplies. Whole milk powder had been predicted to rise by as much as 5 per cent.

It was the fourth drop of at least 2.4 per cent in recent months, after drops of 2.4 per cent on October 3, 3.5 per cent on November 7 and 3.4 per cent on November 21.

Skim milk powder fell 4.8 per cent to US$1675, while cheddar was down 7.9 per cent to US$3389 and butter declined 2.3 per cent to US$4474.

There was a total of 29,592 metric tonnes of product sold, with 167 participating bidders.