Forecast lowered as dairy prices dip

Despite Fonterra putting more milk powder into the latest GlobalDairyTrade auction, demand failed to match supply as dairy prices fell 1 per cent to an average US$3204.

Further falls will put pressure on Fonterra’s farmgate forecast payout, which sits at $6.75 per kilogram of milksolids. ANZ has lowered its prediction to a range of $6.25 to $6.50 as a result of the latest prices.

ANZ rural economist Con Williams said Europe was expected to produce higher milk flows from January on, which would push prices further down.

The result followed last auction’s unexpected 2.4 per cent drop, which broke two consecutive increases. Since May there have been 10 auctions, with prices rising in five and falling in five.

Every product declined except anhydrous milk fat, which lifted 5.2 per cent.

The gloss appears to be fading off butter, which was down by 2.5 per cent to US$5736, and followed a fall of 3.6 per cent two weeks ago.

Whole milk powder (WMP) – a key export product for New Zealand – was down 0.5 per cent to US$3014.

This week Fonterra updated its forecast milk collection for the season, lowering it to 1540 million kilograms of milksolids from 1548 million kg/MS.

In September, Fonterra’s New Zealand milk collection was 2 per cent behind September last season because of poor weather, while Fonterra’s Australian collection increased 23 per cent on September last year.

AgriHQ analyst Susan Kilsby said buyers seemed to be confident they could source WMP whenever they wanted and were therefore not competing hard for it.

‘‘The WMP contracts due to be shipped before the end of the year were sold at a premium – most likely finding support from Chinese buyers who are looking to secure product to land in China early in January.’’

There were 137 winning bidders and 35,669 tonnes of dairy products sold.