Federated Farmers say latest dairy price dip no cause for alarm

World dairy prices remained stable, slipping just 0.8 per cent after six consecutive rises at auction.

World dairy prices remained stable, slipping just 0.8 per cent after six consecutive rises at auction.

Federated Farmers say the slight fall in the latest global dairy auction should not ring alarm bells.

Dairy prices dipped on average 0.8 per cent at the auction overnight, ending a run of six consecutive rises, with New Zealand's main dairy export, whole milk powder (WMP), down 3.3 per cent.

Outgoing dairy group chairman Andrew Hoggard said it was just one auction, and he would be concerned only if there was a run of poor ones as farmers headed into the new season.

Nigel Brunel, director of OM Financial, recommends farmers consider investing in milk futures as a means of managing risk.

Nigel Brunel, director of OM Financial, recommends farmers consider investing in milk futures as a means of managing risk.

"The next few auctions will show how strong or weak the farmgate payout forecasts have been. But it does suggest people should be conservative about their expenses," he said.

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Last week Synlait lowered its farmgate forecast for 2016-17 to $6.15 per kilogram of milksolids from the $6.29 figure it had set in February, citing a "significant" drop in the dairy market. Fonterra's most recent price is also $6.15, plus an earnings guidance of 45-55c per share.

The average price across all products is now US$3434 per metric tonne, with WMP sitting at US$3022/tonne. 

The cheddar price index dropped 3.8 per cent, skim milk powder (SMP) prices rose 1.4 per cent, and butter was up 2.9 per cent.

A total of 21,171 metric tonnes of product were sold and there was a total of 160 participating bidders.

Director of markets at milk futures broker UMF, Nigel Brunel, said the price of $6.50/kgMS being offered for milk through the 2017-18 season should encourage farmers to think about trading in futures.

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"Milk is very volatile and things could change so locking it in at $6.50 is a good move. Futures is a very good tool for managing risk."

He said there was a mix of farmers - both big corporates and small family - who were dabbling in futures, but he cautioned they should receive informed advice.

"They need to have a good relationship with their bank because they need cash to support trading."

Hoggard said he would possibly look at futures "if I had the spare time to fill out the paperwork".

"You have to know what you are doing. You need good advice, it's a tool that is good for some although it wouldn't work for a farmer on the bones of his backside because you need cash."

The ASB said the WMP fall could be put down to better than expected New Zealand production. 

"Dairy markets had pushed WMP prices around 16 per cent higher over March, April and May, as they factored in the possibly of disrupted New Zealand supply.  However, if anything New Zealand production has held up; for example, April production was 6.8 per cent higher than April 2016.

"New Zealand production dynamics aside, global demand appears firm.  In particular, milk fat demand is very high, as indicated by the auction-record highs for AMF and butter.  That said, milk fat prices are likely to retreat from these record highs, particularly as new season production ramps up in the spring."

ASB said it expected prices to remain firm, and continued to forecast a $6.75/kgMS price for the new season.

AgriHQ said WMP had been selling regularly over recent months, so some buyers had sufficient coverage for now. The quantity of WMP sold to North Asia was less than seen at recent events.

While cheddar prices fell from the height they reached at the June 6 auction, they were still comparatively high for cheddar in recent times. The US had record high stocks of cheese, some of which were expected to make it onto the export market.

"Similarly, Europe is expected to focus more on regular cheese production now that it is through its peak milk producing period. Fonterra also announced last week that it would be offering 300 tonnes more cheddar on GDT over the next 12 months."

 - Stuff

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