Dairy prices end four-sale losing streak with modest gain

Photo / Bloomberg

World dairy prices firmed at the latest GlobalDairyTrade auction, the GDT price index ending a four-sale losing streak with a modest 1.4 per cent gain since the last sale a fortnight ago.

Futures market pricing suggested a 5 per cent gain was on the cards.

Wholemilk powder prices, which are a key component of Fonterra's farmgate milk price, rose by 5.5 per cent to US$1974 a tonne. Another important product, skim milk powder, gained by 1.3 per cent to US1802 a tonne. Rennet casein prices shot up by 14.9 per cent to US$4569 a tonne while anhydrous milk fat fell by 8.3 per cent to US3254 a tonne.

AgriHQ dairy analyst Susan Kilsby commented said that while it was a positive result, a sustained price recovery is likely to be some way off.

"Overall market sentiment still remains very bearish as global milk production is still expanded and stocks of dairy commodities are building," Kilsby said in a commentary.

"China is currently a bright spot, as this market is expected to import a little more milk powder this year as imported product is substantially cheaper than producing milk in China," she said.

But China alone was unlikely to soak up all the excess milk that will become available this year - "hence a sustained price recovery is not expected to happen quickly".

The run of weak sales so far this year has cast doubt around Fonterra's current milk price forecast of $4.15 per kg farmgate milk price. The co-operative is expected to review its forecast at this month's first half result on March 23.

Private forecasters expect a downward revision, with ASB expecting a $3.90 milk price, which will follow on from last season's actual milk price of $4.40.

Farmers now face the prospect of two, or possibly three, years in a row of negative returns, with farmgate milk prices now well below DairyNZ's estimated breakeven point of $5.25.

World dairy prices have been depressed because of excess of supply - particularly of the EU - over demand. Very low grain prices have also acted to as incentive US farmers to produce more milk, thereby adding to the supply demand imbalance.

Federated Farmers has said lower auction prices would add to pressure on dairy farmers.

A member poll last month showed more than one in 10 were under pressure from banks over their mortgage, up from 6.6 per cent in August and 7.6 per cent in November.

The Reserve Bank estimates the level of debt in the dairy sector at $37.9 billion.