THE DAIRY INDUSTRY — MORE BAD NEWS. This appears to put the pressure on Fonterra being able to make the $5.30 pay-out announced several days ago. Under $5.00 now appears more realistic. DAIRY PRICES SLUMP A dairy price slump has seen ANZ slash its forecast for Fonterras milk price payout to below $5 a kilogram, with significant implications for the economy. Prices fell 7.3 per cent at the GlobalDairyTrade auction, the fourth drop of 6 per cent or more in the past six fortnightly auctions. The average winning price was US$2599 (NZ$3331) a tonne, down from US$2795 at the last auction and down more than 48 per cent since February. The drop is further bad news for farmers and economy following Fonterras announcement recently that its forecast milk payout is now down to $5.30/kg after a record $8.65/kg payout last season. But ANZ is forecasting a farm-gate milk price of $4.85/kg, down from the banks previous forecast of $5.25/kg. This sits well below the average cost of production for farmers and will have a significant impact on discretionary spending, the banks economists said in a note. A lower dairy price also has significant implications for the wider economy and monetary policy. Moves in the [Reserve Bank official cash rate] look a long way off, with our call for the next move to arrive in March now under review. Expect the New Zealand dollar to remain under pressure. ASB senior economist Chris Tennent-Brown also said the milk price could drop below $5/kg. Markets are oversupplied and buyers are sitting on their hands, not feeling in any rush to pay high prices, he said. The signal they are getting is thats a pretty reasonable thing to be doing. New Zealand production looks like its already up on last year. Tennent-Brown said Russias food import embargo was probably having an effect, as dairy suppliers looked for someone else to sell their products to. However, although dairy farmers incomes are set to decline by as much as $5 billion from last season, Tennent-Brown said New Zealands overall economy would continue to grow strongly. Its going to shave a bit off GDP over the next couple of years, maybe 0.1 per cent per quarter for several quarters but its not going to take us from 3.5 per cent growth to 2.5 per cent. The trade-weighted GlobalDairyTrade price index, which is adjusted to account for product mix, fell to its lowest level since May 2012. Volume remained high, with 55,057 tonnes sold, nearly 8 per cent up on the previous auction and the second-highest total this calendar year. The price of all categories sold at the auction fell with the 10 per cent drop in whole milk powder, Fonterras biggest export product, of particular concern for its farmers. Butter milk powder had the biggest fall, down 11.3 per cent, while sweet whey powder (down 9.3 per cent), butter (down 6.6 per cent) and anhydrous milk fat (down 5 per cent) also suffered big price falls. Skim milk powder was down 2.7 per cent, rennet casein was down 1.4 per cent and cheddar was down 1.2 per cent. Lactose was not offered at the auction. The latest price slump has put immediate pressure on Fonterras farm-gate milk price forecast of $5.30 a kilogram of milk solids, which it cut from $6/kg last week. Ad Feedback Following todays auction NZX Agris new farm-gate milk price calculator is forecasting a milk price of $5.05/kg for farmers this season, down 40 per cent from last seasons record price of $8.40/kg. And the pain may last for a while yet, according to a new Rabobank report that predicts a protracted bear market for the dairy industry. — Rabobank director of Dairy Research New
Posted on: Wed, 01 Oct 2014 21:59:42 +0000
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