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Global Dairy Trade Auction Prices Fall Again, Another Fonterra Cut Looms
January 19, 2016

World dairy prices have fallen again at auction, leaving farmers resigned to Fonterra dropping an already low payout.

The average auction price dropped 1.4 per cent to US$2405 a tonne at the GlobalDairyTrade (GDT) auction. That compared with a 1.6 per cent fall in the last auction a fortnight ago.

Federated Farmers Dairy chairman Andrew Hoggard said the disappointingly weak GDT result would put more pressure on Fonterra’s “poor” forecast payout of $4.60 a kilogram of milksolids.

“This doesn’t look good for the farmgate milk price, we have seen Open Country Dairy drop its forecast in the last week, and this result increases the likelihood Fonterra will do the same.”
Prices dropped for the second consecutive auction.

Hoggard said it was still possible that a sudden upswing in prices in the next couple of months could get farmers to an unchanged payout, but they would need to be large for Fonterra to reach its forecast farmgate payout.

“But using my cricket analogy, we just had another wicket maiden, when we really needed to smash a couple sixes out of the park.”

New Zealand’s major export, whole milk powder (WMP), was down 0.5 per cent, to an average price of US$2188.

There were 156 bidders trading 21,930 metric tonnes of dairy product.

Fonterra has said the price for WMP needs to reach US$3000 a tonne by about mid-autumn to maintain the forecast farmgate payout of $4.60/kg.

Hoggard said anything below a $4.60/kg payout would ramp the pressure up on farmers and the continued flat results did not bode well for next season.

“With another poor result I expect various people might try to jump on the bandwagon and try to the lay the blame somewhere, this is simply economics 101, supply is too high and demand is weak. … If we want to look at anything to blame, then the answer lies offshore with subsidised production in other countries hiding economic realities from farmers offshore who keep increasing production despite the market telling them the opposite.”

Surplus production only had a small market to go into and if demand was weak then prices would go down hard, he said.

“In this time of low world prices we have the absolutely ridiculous situation of butter shortages in Japan and Canada. More open and free trade will result in less volatile and more sustainable world prices for all the world’s farmers.”

Lower prices were recorded on the dairy futures market ahead of the auction.

AgriHQ revised its estimated farmgate milk price by 17c to $4.43/kg after the GDT result.

Dairy analyst Susan Kilsby said the weak GDT results were aligned with market expectations and global demand for dairy commodities continued to be weak compared with international milk supplies..

OCD revealed this week that tough international market conditions had forced it to lower its milk forecast by 30 cents to $4-$4.30/kg.

The dairy company’s chief executive Steve Koekemoer said, in an email sent to suppliers, the payout fall was because of weak demand and an oversupply of milk products in the global market, resulting in continous downward price pressure.

A lift in December prices had been shortlived, he said.

By Tim Cronshaw


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