Dairy product prices extend plunge to fresh six-year low

Dairy product prices plunged still lower in the latest GlobalDairyTrade auction, paced by a drop in milk powders as supply surges.

The GDT average winning prices sank 9.3% to $1,815, down from $US2082 at the previous auction three weeks ago. It was the lowest level since August 2009. Some 46,527 tonnes of product was sold, up from 31,691 tonnes of product three weeks ago.

Fonterra is due to update its farmgate payout forecast (currently $4.40 for 2014/205 and $5.25 for 2015/2016) on Friday. In the wake of this morning's auction, ANZ economist Cameron Bagrie slashed his 2015/2016 forecast to from $3.75-4.00 to $3.50.

“Farmers now face two consecutive seasons of extremely low milk prices,” AgriHQ dairy analyst Susan Kilsby said in a note. “Very few farmers will be able to turn a profit at such a low milk price.”

The AgriHQ 2015-16 Farmgate Milk Price decreased to $3.34 per kilogram milk solids, down 90c from the previous auction held three weeks ago. This compares with Fonterra’s 2015-16 milk price forecast of $5.25/kgMS, which it is expected to revise at the end of this week.

“Many of the products offered by Fonterra sold at their opening prices,” Ms Kilsby noted. “This indicates there was not sufficient demand from buyers to match the larger quantities of product offered.”

The volume of whole milk powder offered was 78% greater than at the previous auction, according to Ms Kilsby.

“Clearing the greater volume of product offered was always going to be a challenge in today’s weak market,” Ms Kilsby said. “However, it is still very disappointing that many prices didn’t move above their opening levels.”

Skim milk powder dropped 14.4% to $US1419 a tonne, anhydrous milk fat sank 11.7% to $US2253 a tonne, while whole milk powder fell 10.3% to $US1590 a tonne.

Butter retreated 6.1% to $US2293 a tonne, while butter milk powder declined 5.1% percent to $US1700 a tonne, and rennet casein gave up 2.7% to $US5289 a tonne.

Cheddar eked out a 0.2% gain to $US2663.

The New Zealand dollar last traded at 65.41USc at about 2:25pm in New York, compared with 65.63USc at 5pm in Wellington the previous day. The currency was trading above 88USc a year ago.

Alessio de Longis, a money manager in the Global Multi-Asset Group at OppenheimerFunds in New York, told Bloomberg that he expects the Kiwi to fall to as low as 50USc in the next one to three years.

There were 142 winning bidders out of 152 participating bidders at the 12-round auction. The number of qualified bidders rose to 637, up from 628 at the last auction.

 (BusinessDesk)

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