Futures pricing is pointing to dairy prices flattening at tomorrow's GlobalDairyTrade auction as the sector continues to grapple with the same issues that held sway last year - oversupply and low demand.
The January 6 auction kicked off the year on a weak note, with the all-important whole milk powder price dropping by 4.4 per cent to an average US$2210 a tonne. Prices for another significant product - skim milk powder - eased by 0.8 per cent to US$1890 a tonne.
Fonterra's current $4.60 a kg of milksolids farm gate milk price forecast rests on wholemilk powder prices reaching US$3000 a tonne in the first half. At $4.60, the forecast is short of the estimated break-even point of $5.40.
Dairy futures trade since the first sale of 2016 has been very light but the pricing for wholemilk and skim milk powder contracts suggested the market would be flat this week, OM Financial dealer, Michael Peters, said.
ASB Bank said there was a chance of a small tick up in dairy prices at this week's auction , "but the overall trend remains still weak and highlights one of the key areas of downside risk to the NZ economy," the bank said.