Many dairy products failed to move up from their opening price levels which Fonterra typically sets 15% below the previous auction price.
The drop in the dairy commodity market resulted in a revision of the AgriHQ 2015-16 Farmgate Milk Price to $4.22/kg milksolids (MS). This compares with Fonterra’s current milk price forecast of $5.25/kg MS.
NZ dairy farmers are now faced with a second season where the milk price is likely to be below the cost of production. In this environment farmers have little option but to cut costs where they can. The fixed nature of many costs means there is little incentive to cut milk production.
Prices for most grades of milk powder are now at their lowest level in the history of GDT. March 2009 was the last time the AgriHQ WMP price dipped below US$2000/t. The WMP price has not been below US$1700/t in the past decade.
The NZX Dairy Futures market anticipated a fall in whole milk powder (WMP) prices but under estimated the scale of the fall. Since the July 15 GDT event the NZX Dairy Futures market has traded down further. It is difficult to see a recovery in the market in the short-term.
The new dairy season for NZ is now underway. Calving has commenced, although the majority of cows won’t return to milk until next month. Low dairy commodity prices are now feeding into lower milk prices throughout the main dairy exporting nations. Farmers are now getting a signal to slow milk production but it will take some months for the brakes to be applied.
