Fatter payout likely despite price drop

INTERNATIONAL dairy prices are on the way down after a stellar, drought-driven run, but economists are still picking the dairy payout in the coming season will be fatter than this year’s.

The average price on Fonterra’s latest online dairy auction Global Dairy Trade this week took a 7.3 per cent tumble after rain in New Zealand took the edge off overseas buyers’ hunger for a tightening world supply of product.

The fall came as no surprise to economists however, who said prices that were 77 per cent higher than a year ago were not sustainable, and that the average price would continue to decline through the rest of the year.

The fall broke a nine-auction run of gains for the basket of dairy goods sold on the twice-monthly platform on which several inter- national dairy companies also sell products.

ANZ chief economist Cameron Bagrie said the drought-breaking rain was key to the price fall but prices had got ‘‘overcooked’’ and a correction was due.

Prices would continue to ‘‘normalise’’ but the decline would still see average prices remain elevated, Bagrie said.

He is picking

a

total

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payout next season in the high $6s, trending towards $7/kg milksolids but not breaching $7.

The new 2013-2014 dairy year officially starts on June 1, but milk does not start flowing until August. Fonterra farmers, who supply nearly 90 per cent of New Zealand’s raw milk volumes, will this month learn the final payout for the current 2012-2013 season. The Fonterra board will also an- nounce an opening forecast payout for the new season.

BNZ economist Doug Steel said average prices had further to fall, though it should be acknowledged that the average price on GDT had surged 60 per cent in the past three months alone.

Underlying world demand however remained strong, so prices were unlikely to fall back as far as pre-drought levels, Steel said.

He too is picking a new season dairy payout higher than this season’s.

The BNZ’s ‘‘tentative’’ forecast for the 2013-2014 season is $6.60. This includes a milk price, dividend and retentions. The payout forecast for the current season just ending is for $6.25 to $6.30.

This includes a milk price of $5.80, a 32c dividend and retentions. Steel believes there is still some room for Fonterra to increase the season’s final payout.