The ink is barely dry on Fonterra's milk price forecast for 2014/15 and there are already signs that it could be revised downwards after the latest GlobalDairyTrade (GDT) auction showed a sharp and unexpected slide in whole milk powder prices.
Whole milk powder (WMP) - the most important product group for New Zealand dairy farmers - fell by 8.5 per cent to US$3590 a tonne - and was mostly responsible for the GDT Price index dropping by 4.2 per cent compared with the last auction a fortnight ago.
Fonterra last month forecast a $7 a kg farmgate milk price for 2014-15, down sharply from the record price of $8.40 a kg for the 2013/14 season, in response to a string of weak auctions. The price difference between the two seasons represents a $2.3 billion decline in dairy farmer income, equating to about 1 per cent of GDP.
ASB Bank's milk price forecast is the same as Fonterra's, but the bank's rural economist Nathan Penny said the latest auction result, which showed the price effects of greater supply, added more risk of a downward revision.
"It's hard to read too much into one auction, so we are not going to revise [our forecast] at this point, but we have signalled that we are watching closely."
