Russia’s ban on European dairy imports is thought to be the main culprit with tonnes of Northern Hemisphere product now looking for a home at discounted prices.
The average price on the overnight GDT auction was US$2787, 45% down on just seven months ago.
The latest fall comes just a week after Fonterra maintained its milk price forecast of $6kg/MS and two weeks after signs of stabilisation in the last GDT auction, when the average price slipped just 0.6%.
But overnight, the price of skim milk powder, a major New Zealand export, took another hit, falling 9.5% on the last auction, but mainstay export whole milk powder fared a little better, falling 4.3%.
BNZ senior economist Doug Steel said the overnight result put paid to hopes of an aggressive bounce back in world prices any time soon.
A lift in prices, at least a sustained one, was unlikely now until next year, he said.
BNZ had revised its own milk price forecast down to $5.80 milk price after a string of GDT falls this year, but would now revise this downwards, he said.
Fonterra directors’ decision to hold the $6 forecast recently was a surprise. The 2014-2015 season opened with a $7 forecast, sharply revised down shortly after.
Steel said the GDT auction in late August, when the index slipped by just 0.6% after previous heavy falls, had suggested some stability was creeping back into world markets.
“Prices overall were flat but masked a lot of activity in the detail, particularly around the Russian ban and perhaps Chinese demand picking up a little … there was hope stabilisation was creeping in but this result dashes those hopes.”
While the Russian ban on European dairy imports in retaliation for sanctions over the Ukraine crisis had suggested a windfall for New Zealand product at good prices, the BNZ had warned the European dairy industry had a lot of product needing buyers.
“We know European commissioners are invoking emergency support measures (for farmers) and industry bodies are calling for more to be done, so there is a lot of downwards pressure on European dairy prices. This result mirrors that,” Steel said.
The Kiwi dollar has softened by 1% since the late August GDT auction which was a bit of a cushion for New Zealand producers.
And it was a small comfort that Europe did not make much whole milk powder, he said.
The whole milk powder price fell just 4.3% to US$2673 while the butter milk powder price tumbled nearly 13% to US$3174.
The bidder turnout showed international buyers continuing to stay away with just 184 participants compared to the 660 qualified to bid on GDT auctions.
Skim milk powder was 9.5% down, rennet casein 14.3% down, butter 5.6% down, and anhydrous milk fat dipped 5.8%.
Butter fetched 5.6% less than the last auction.
Federated Farmers dairy chairman Andrew Hoggard said the latest price dip was disappointing but dairy farmers should not get too pessimistic, and focus on the things they could control.
“Farmers pay attention to it (GDT) but can we have any effect on it? No. This season was always going to be tight, so I’m focused on making sure staff understand that. We’re looking at costs and what things we were planning on spending on, can we push them through to next season.
“Take charge and control the things we can like pasture and cow health, that’s where the focus is.”
