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Earnings from dairy prices made earlier this month were wiped out in this morning’s auction, the World Dairy Trade Price Index fell 4.2 percent and brought the market to where it was 16 months ago.
All the products on offer weakened, except cheddar and lactose, which increased by 1.9 and 12 percent, respectively.
Whole milk powder prices, which have the biggest influence on Fonterra’s farm milk price, fell 3.9 percent to $ 2,707 / ton, and returned to where they were in January 2019.
Skimmed milk powder: Fonterra’s second largest “benchmark” product fell 4.9 percent at an average price of $ 2,380 / ton.
The biggest drop in the main commodity groups was anhydrous milk fat (MFA), which fell 7 percent to $ 4,083 / ton. The regular grade AMF to send in June was reduced by 15 percent.
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Compared to last year’s equivalent event, volumes also increased, except for butter, which decreased slightly.
“Thus, demand appears to have been reasonably strong; however, buyers were clearly not willing to accept higher prices,” said Amy Castleton, chief dairy analyst at NZX, in a comment.
Economists have revised downward their 2020/21 milk price expectations due to the disruption caused by the Covid-19 pandemic.
Rabobank is forecasting only $ 5.60 per kg of solids for the upcoming season due to the likely impact on the pandemic market, while most of the others predict a milk price of $ 6.30 to $ 6.50 / kg.
In the previous auction on April 7, prices rose, despite the futures market pointing to a drop. The New Zealand dairy season ends on May 31.
ASB rural economist Nathan Penny said the negative sentiment in the oil markets seemed to have spread to dairy.
Some of Fonterra’s key markets are in the oil-producing parts of the world, so low oil prices can sometimes mean downward pressure on dairy prices.
The weak result of the dairy auction follows the fall in oil prices this week
The weakness in the price of oil centers on the United States’ immediate lack of capacity to store oil, with futures prices for June still positive.
Penny said this suggested that both the weak oil price and the weak result of the dairy auction would be temporary.
“However, these developments add to our caution about the prospects for the global dairy market,” Penny said in a comment.
Both the whole milk powder auction prices and general dairy auction prices have dropped about 15 percent since the Covid-19 outbreak began to affect dairy markets beginning in February.
Only minor adjustments are expected to be made to Fonterra’s $ 7.00 to $ 7.60 forecast for the current season, which ends May 31, but the GDT auction has cast further doubt on the 2020/21 outlook.
“For now, we retain our forecast of $ 6.50 / kg, but be aware of mounting downside risks and suggest that farmers begin planning contingencies for the possibility of a milk price below $ 6.00 / kg for the season. 20/21, “said Penny.
Fonterra will issue its 2020/21 forecast in late May.
