Milk prices drop as supplies rise
More milk on the world market has driven down dairy prices by 3.2 per cent at the Global Dairy Trade auction.
New Zealand’s main export, whole milk powder (WMP), was down 3.7 per cent at US$3189 per metric tonne following a 1 per cent rise a fortnight ago. Before last week’s auction Fonterra had announced New Zealand farmers would produce 5 per cent less milk than last season, revising an earlier forecast of a drop of 7 per cent.
As a result, Fonterra has lifted the volume of WMPput to auction by 5 per cent, to 13,950 tonnes. This was also 5 per cent more than was made available at the previous auction.
Westpac economist Sarah Drought said weather conditions in New Zealand were expected to be better for the latter part of the season, with some ‘‘decent’’ rain keeping dry conditions at bay in most regions, for a further boost to short-term production prospects. In Europe production to December had fallen by 3 per cent over 12 months, although this was expected to lift slightly. Demand from China should continue to hold up.
‘‘Chinese demand dropped away in December but bounced back at the beginning of the year, and the forecast for the Chinese economy is positive for this year.’’
Westpac remained ‘‘comfortable’’ with its farmgate forecast of $6.20 per kilogram of milksolids for this season. The ASB said it was sticking with its forecast of $6.50/kg for now, ‘‘though note the extra downside risks’’.
Fonterra’s forecast sits at $6/kg after last week’s revision.
AgriHQ dairy analyst Susan Kilsby said while the lift in Fonterra’s milk intake expectations would not have come as a surprise to many market participants, it has still had an impact on the market.
Huge stockpiles of skim milk powder in European warehouses was limiting prices for product from New Zealand.