Dairy auction prices lowest in two years
Fonterra cannot support a $6/kg milk solids payout if milk prices continue to slide on their current trend, dairy analyst Keith Woodford says.
Prices were down 8.4 per cent at the GlobalDairyTrade auction overnight, only a week after Fonterra cut its milk price farmer payout forecast by $1 a kilogram of milk solids to $6/kg.
The slump was the second in a row, and saw prices drop to their lowest level in two years.
It occurred three weeks after the previous auction, which saw a shock 8.9 per cent decline.
The professor of farm management and agribusiness at Lincoln University estimated the milk price could drop as low as $4.80/kg when he spoke at the New Zealand Institute of Primary Industry Management's conference in Hamilton earlier this week.
"That's not for a second suggesting what the milk price would be, but if we were to get those prices right through the season, that's about where we would be."
Woodford emphasised he was not predicting a lower payout. There is still a huge range of price that it could end up at.
The price would be struggling to get to $5/kg after the most recent auction, but that did not necessarily mean the payout would drop to $5 or less.
Nobody could be certain what the payout was going to be for the coming year, he said.
It was not until Christmas that an accurate prediction could be made of what the milk price could be for the season. By that stage, about 70 per cent of the season's product would have been sold.
"If the price goes up in the next couple of auctions, we'll all breathe a sigh of relief and think that it's starting to look pretty safe at $6.
"At the moment, we don't know within a range of at least $1 on either side of that $6. Seven dollars was looking a long way up, whereas $5 is not out of the probabilities."
Waikato Federated Farmers vice president Andrew McGiven said the latest result was disappointing. "It's the name of the game - volatility. You just have to hang in there."
McGiven was optimistic that demand for milk products would go up again later this year and it could start pushing the price back up. "Hopefully this would happen sooner rather than later."
It was still very early in the season. Farmers should not panic, but just re-do their budgets, he said.
"Keep the budget and cashflow as a living document and just update it when you need to."