The largest fall in prices across five out of six dairy commodities in the latest Global Dairy Trade auction has exporters and analysts reaching for the red pens to cut milk price forecasts.
The 4.3% fall in the GDT index along with the 8% fall in whole milk powder prices takes farmgate milk price predictions into $7/kg territory, having lost touch with the $8s and $9s of the past two seasons.
Fonterra’s forecast mid-point of $8 for the season now looks to be 20c too high, Westpac senior agri economist Nathan Penny said.
He slashed $1.10 from his own forecast two weeks ago but now says $7.80 has downside risk.
“While it is difficult to read too much into one auction result, it does point to prices potentially falling by more than our updated forecast suggests.
“The price fall reinforces that global dairy market confidence remains at a low ebb, with few signs of a turnaround on the immediate horizon.”
The GDT index is now at 918, the lowest point since September 2020, and a slippery 42% below the dairy market’s recent peak in March 2022.
The average price paid for WMP fell US$236 from $3100/tonne to $2864/t, below the resistance level of $3000 that an $8 milk price is predicated upon.
Within the different contract periods for WMP offers, prices for near-term delivery in September dropped 14% while, further out, periods fell 4.5% compared with the mid-July auction.
After the 8% fall, dairy market observers will be waiting for a second substantial movement, as happened in April last year with consecutive 7% and 6% declines.
A repeat would be a strong indication of a falling market as New Zealand enters its peak milk season.
Skim milk powder dropped by 1.4% to $2454/t, butter by 0.7% to $4680, anhydrous milk fat by 0.5% to $4705 and cheddar by 1.4% to $3910.
These falls were surprises to market analysts going on recent futures market trends.
NZX dairy analyst Alex Winning said the big drop for WMP was despite China returning to the market with some determination.
“North Asia took out top buyer’s spot for both milk powders and cheddar.
“This was a shift from recent events, and a welcome one, as processors and traders watch to see the impact of the Chinese tariff lift on NZ dairy products in January.
“Compared to the last auction, North Asia increased purchases across the four major commodities.”