Limitoo News

'A turbulent time ahead': Global dairy prices on a downward slide

Global dairy prices have fallen for a third consecutive auction, as market disruptions forced Fonterra to sell more product on the platform.

Both dairy farmers and the economy are buffeted by lower prices.
File pic Photo: AFP

The average price at the fortnightly global dairy auction fell 3.6 percent to $US4885 ($NZ7250) a tonne, after falling 1 percent in the previous auction.

The price of wholemilk powder, which strongly influences the payouts for local farmers, was down 4.4 percent to US$4207 a tonne.

The volumes offered rose more than 3 percent and prices for other products sold were all weaker.

NZX dairy analyst Stu Davison said the outcome was not as bad as it might have been.

"I was expecting the slide to be much larger, so on balance this 3.6 percent slide wasn't as drastic as expected."

Fonterra had warned that the war in Ukraine, lockdowns in China, and the economic crisis in Sri Lanka had forced it to offer more in the auction than might have been expected.

Davison said the higher volumes of wholemilk powder had depressed demand with overall market behaviour suggesting buyers bought what they wanted and were not going to chase prices higher.

"There will be a turbulent time ahead for the global dairy market, as key markets deal with their own internal issues, with a volatile and uncertain time for prices the only sure thing."

Dairy prices peaked at a record level at the beginning of March with average price rises of 4.5 percent in the four auctions from early January, but have since fallen 5.4 percent from the high, although they are still near record levels.

Dairy farmers are in line for a record payout this season with current forecasts around $9.50 a kilo of milk solids, which Davison said would be hard to sustain going into the new season, which starts mid-year.

"This slide will have a negative impact on NZ farm gate milk price forecasts for the coming season, which will paint further concerns for Kiwi farmers, who will now be unlikely to deliver extra milk in the same season."

He said the key fundamentals remained in place; demand was still relatively steady, and milk supply was constrained.