World butter price takes a hit

Dairy farmers are feeling the squeeze from both ends – milk prices are falling but feed, fuel, and freight costs are rising.

The latest global dairy auction has seen prices drop for the seventh time in a row, with prices back to what they were two years ago.

New Zealand’s key commodity, whole milk powder, which largely governs the milk price Fonterra pays to farmers, fell 1.8 per cent, while the overall index was down 3.5 per cent.

ASB analyst Nathan Penny said the bank was now trimming its 2018-19 milk price forecast by 25 cents to $6 per kilogram of milksolids, an effective $370 million cut over what farmers expected they might earn.

Fonterra has revised its price downwards twice already this season, to a range of $6.25 to $6.50. It is due to make another call on December 15, when it is likely the price will drop again.

Statistics NZ said the prices received by dairy farmers fell by 4.8 per cent in the September quarter but their costs rose by 1.5 per cent, mainly because of higher prices for animal feed, fuel and freight.

But Federated Farmers dairy chairman Chris Lewis said wages and fertiliser costs had not been included in the figures. ‘‘Wages are increasing a lot. There’s a lot of competition for talent. Fertiliser is higher with the Kiwi dollar dropping against the United States dollar,’’ Lewis said. ‘‘The two biggest costs you have on a farm are wages and fertiliser. Stats is right about feed – palm kernel extract was $220 a tonne a year ago, now it’s $300.’’ Farmers did not need to be experts to interpret what recent milk price declines meant – it was obvious that Fonterra would revise its forecast.

However, Lewis cautioned that the dairy season was a ‘‘game of two halves’’ and that as production fell after Christmas, prices might edge higher.

Because processors have had to pay 3.7 per cent less for raw milk during the September quarter, they have also received 6.5 per cent higher prices locally and overseas.