World dairy prices tumble further as farmers face the prospect of being charged for livestock emissions

As debate rages in New Zealand’s farming industries over the Ardern  government’s  plan  for  charges  on  agricultural emissions, prices at Fonterra’s  Global  Dairy  Trade fortnightly auction  have fallen to their lowest level in nearly two years.

The average price at the sale fell 3.9%  to US$3537 (NZD$6054) a tonne, after falling 4.6% in the previous auction.

Prices have generally been falling since hitting a record high in March, and are now at their lowest level since January last year.

Wholemilk powder fell 3.4%  to US$3279 a  tonne and  skimmilk  powder 8.5% to US$2972  a  tonne, while  butter  was  marginally  up at US$4868  a  tonne  (though  a  long way  down  from  its peak  in  March  above  US$7000 a  tonne)  and cheddar 0.9% to US$4802 a tonne.

“The global dairy market has been bearish for the last six weeks, with more negative drivers stacking up since the last auction,” according  to NZX dairy analysts.

They said a drop in demand was the dominant factor even though NZ milk production was down 4% on last season.

“We know that consumer demand is light and falling, resulting in buyers and traders not wanting to be stuck with excess stock.”

The NZX analysts said that Chinese buying of wholemilk powder was notably weaker, but buyers from other countries also looked reluctant to buy.

“There will likely be some bumps in that path, but there is no heat in the market for it to head up any time soon,” the NZX analysts said.

“For buyers this means some breathing space, for the sell side this means concerns around later dated contracts as we start looking into the 2023-24 season already.”

If  there   are  concerns  among  dairy  farmers  over  trends  at  the  GDT auctions, it’s   nothing  to  that  stirred  up  by  the  government’s  plan  on  emissions. Even  Fontera  sounded  cautiously  disapproving  with Fonterra chair Peter McBride saying the government’s changes created an imbalance within the sector that needed to be addressed during consultation.

“Like DairyNZ, we have reservations about the government’s current approach to the levy price setting process, governance, and sequestration accounting, we will be seeking changes on these issues and working with DairyNZ to support farmers to engage in the process.

“It’s important that the final package works for the primary sector as a collective, so all voices need to be heard during the consultation process over the next six weeks.”

McBride said Fonterra supported the split gas farm-level levy as it enabled farmers to directly benefit from decisions they made on-farm.

Doing nothing was not an option, he said.

“Globally, our customers want to understand the emissions profile of the dairy products they buy, yes, we are already one of the most emissions-efficient producers of dairy in the world. But we need to work hard and be innovative just to maintain this valuable advantage.”

Other  critics  have  pointed  out that the most important part of the government’s proposed agricultural emissions pricing scheme is the price,  but the government has failed to provide a clear indication of what the price will be and how it will be set.

They  say this uncertainty is already undermining  the  concept.