ASB trims milk price forecast by 40c in wake of GDT prices hitting lowest level in five years

ASB has trimmed its milk price forecast to $4.70 per kilogram of milk solids following dairy product prices in the latest GlobalDairyTrade auction falling to the lowest level in more than five years.

The GDT average winning price slid 3.1 percent to US$2,561 overnight, the lowest level since August 2009, and down from US$2,649 two weeks ago. Some 39,613 tonnes of product was sold, down from 45,499 tonnes at the last auction.

Although prices rose for four of the seven main products, the prices of whole milk powder and skim milk powder fell over 5 percent to US$2,000 a tonne and US$2,299 a tonne respectively. ASB cut its forecast by 40 cents/kgMS on the basis there is likely to be a much more protracted recovery in prices. However,it does still expect prices to rise over 2015.

"In this vein, we note that prices for later-dated contracts remain higher than near-dated contracts", it said in an economic update.

Fonterra is due to update its $5.30 kg/ms forecast payout in the second week of December and neither the chairman nor chief executive would be drawn at last week's annual shareholders meeting on whether the figure was likely to drop below $5 as various banks have forecast.

Federated Farmers said another drop in the GlobalDairy Trade will be a huge disappointment to New Zealand's dairy farmers.

Dairy farmers were hoping to see a lift or at least a plateau to realise Fontera's latest forecast, said Federated Farmers dairy chair Andrew Hoggard.

"This further drop increases the uncertainty of how realistic that goal is," he said. "Interesting to note, the prime minister said, at our National Council this morning, he believes the GDT has bottomed out and we are likely to see things improve".

Westland Milk Products, the second-largest dairy cooperative after Fonterra, is forecasting a payout of $5.40-to-$5.80/kgMS before retentions for the 2015 season.

West Coast Federated Farmers provincial president Katie Milne said the payout from the Hokitika-based cooperative, will be hard to hold as a result of the GDT with Westland selling more milk powder than anything else.

"Westland suppliers should be prepared that there may be a drop in the payout after the board meeting at the end of the month. However there's nothing wrong with living in hope, and if it doesn't drop we will all breathe a little easier," she said.

AgriHQ dairy analyst Susan Kirby said milk fat products such as butter and cheese did improve in the GDT but this didn't offset the fall in milk powder prices which are traded in larger volumes than the fat products.

"The market for skim milk powder is being weighed down by the expectation that global milk flows will remain strong for some time to come and this negative sentiment is also spilling over into the market for whole milk powder."

She also expects any recovery in prices to be protracted.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 20 cents to $4.55/kgMS following the GDT auction.

The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest GlobalDairyTrade prices were achieved across the entire season this would equate to a milk price of $3.70/kgMS, a 25 cent fall from the previous auction.