Milk production hits record levels
Chasing higher prices, dairy farmers have produced a record 1.8 billion kilograms of milksolids in 2013-14, a 160 million kg hike over the year before, the latest economic update from the ASB reports.
"Of the 10 per cent increase, 7.5 per cent comes from Fonterra's farmers, with other companies lifting it to the 10 per cent," economist Nathan Penny said.
He said that the increase was not just a response to higher prices, but farmers had also bounced back from the drought of 2012-13.
"But you don't get a rebound from the drought two years in a row, it's harder to get a big jump again," Penny said.
Fonterra expects a lower 2 per cent rise in production for the 2014-15 year as lower dairy prices make their mark.
At the latest auction on Tuesday, prices fell by 4.2 per cent, the eighth consecutive time this year they have dropped. Since February, prices have dived by 26 per cent.
Penny said the latest drop had been larger than expected, putting a question mark over the ASB's and Fonterra's forecast milksolids payout of $7 a kg for the following season, well below the present price of $8.40.
"While we can't read too much into one auction's results, however, the risk is that dairy prices stabilise at a level lower than previously expected. At this juncture, we move our forecast to 'under review'," Penny said.
He added that, "not surprisingly" Fonterra hadn't been able to handle the record amount of milk in its drying facilities, and at times had moved to making cheese and other products.
In other commodity news, ANZ Research has reported falls in forestry prices of 4 per cent for logs and 2 per cent for wood pulp.
However, kiwifruit rose 4 per cent and apples half a per cent. Sheepmeat prices reached a two-year high, while beef, seafood and sawn timber recorded modest increases, but the latter two reached record highs.
The ANZ commodity index is now nearly 13 per cent below the peak measured in March 2011.