Time running out for dairy prices to reach target
Farmers are running out of time to reach the Fonterra forecast farmgate payout of $4.60 per kilogram of milksolids, analysts say.
Responding to the latest global dairy auction average price fall of 1.6 per cent to US$2458 per metric tonne, Federated Farmers dairy chairman Andrew Hoggard said if he compared it to one-day cricket, it would be an uphill battle to reach the Fonterra price.
New Zealand's major export, whole milk powder (WMP), was down 4.4 per cent, to an average price of US$2210.
Fonterra has said the price for WMP needs to reach US$3000 a tonne by about mid-autumn, which is only four or five auctions away.
"We're going to need something like 8-10 per cent rises every auction from now on out. In one-day cricket terms, we've just had another over where we've lost another wicket and didn't score, the required run rate is going up and up and at some point it's just not doable," Hoggard said.
The falls on Wednesday followed a 1.9 per cent rise in the previous auction.
Rabobank analyst Emma Higgins said there might have been a "few jitters" in the market following the sharemarket decline on Tuesday.
"The reality is global dynamics are driving the process and they are bearish. The challenge is that the longer these prices continue at these low levels the more risk there is of the farmgate price not being achieved or even moving lower," Higgins said.
Rabobank's forecast was that WMP prices would not lift near the $3000 mark until the second half of 2016.
Westpac economist Anne Boniface warned that the bank's current $4.50 farmgate milk price payout forecast for the 2015-16 season relied on an improvement in prices in the first few months of 2016.
"We continue to think the impact of the current El Nino weather pattern could weigh on New Zealand milk production over the next few months. This in turn could put some temporary upward pressure on prices. But, with European milk production still growing strongly, and the Chinese economy continuing to look relatively soft, a more sustained improvement in prices looks likely to be a while away yet," Boniface said.
Hoggard said one bright spot had been the wet weather.
" I'm still looking at a puddle from the recent rain and we're expecting some more this weekend so that will help. Some of the parts of the country which desperately needed it got a good amount, such as North Canterbury."
In response to the latest auction, the AgriHQ farmgate milk price has dropped by 7c to $4.60/kg MS.
The NZX Dairy Futures market had anticipated a lift of 6 per cent for WMP and more than 11 per cent for skim milk powder from the last auction.
GDT price indices were mixed. The lactose price index showed the largest gain, up 11.4 per cent. The butter price index gained 6.7 per cent, and the index for rennet casein gained 3.9 per cent. SMP eased by a modest 0.8 per cent. Cheddar prices were up 3.5 per cent, and the butter milk powder index was up 1.0 per cent. The anhydrous milkfat index lost 2.7 per cent.
There were 166 bidders trading 25,671 metric tonnes of dairy product.