Oops – the world price dips for dairy products but low NZ dollar is a compensating factor

Dairy prices have fallen  at the  Fonterra  GDT  auction this  week.  The average price at the fortnightly sale fell 3.5% to US$3911 ($NZ6830) a tonne, after rising 2% in the previous auction.

Prices have generally been falling since hitting a record high in March. But   with the  NZ dollar  now  down around the US57c mark, the  impact   of  the  latest fall  on the  farmgate  payout  will not  be as  great as it  at  first appears.

The price of wholemilk powder, which strongly influences the payout for  farmers, fell 4% to US$3573 a tonne.

Prices for other products fell  also: butter was down 7% to $4983,skim milk powder down 1.6% to $3497,  and cheddar down 3.8% to $4,966.

NZX dairy analyst Alex  Winning  said a  significant lack of demand arriving at this auction has resulted in a red screen of price declines.

“Demand to supply ratios at this auction were almost half of what arrived at the previous auction.”

The amount of product on offer was up on previous auctions, which Winning said was a factor in the weaker prices, as was the weak demand coming from Chinese buyers.

“The lack of Chinese demand remains the big unknown for the wider dairy market, everyone on the sell side is still waiting with bated breath for the Chinese buyers to rally the market higher.

“Conversely, everyone else on the buy side of the market is most likely relieved not to be competing with strong Chinese demand while prices for everything else are climbing”.

Winning said the weakness in prices perhaps mirrored the wider macro-economic environment.

“It is tough on the ground for consumers and the tail wind of steady demand from consumers is likely to be fading”.

Dairy giant Fonterra  has cut the 2022/23 milk payout forecast by 25ckg/MS to a mid-point of 9.25kg/MS.

The new range is $8.50-$10.00kg/MS. However the current advance payment rate of $5.70kg/MS remains unchanged.

Fonterra also reported a 5% drop in local milk collection in August.

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