The GDT price index dropped 5.9%, the eighth consecutive fall in prices at fortnightly auctions and the third largest fall in the losing sequence.
When Fonterra and its farmers were holding their breath for a bottoming out of the world market for their dairy commodities, a further gaping hole opened up in front of them.
The spot price indicator, if July 1 GDT values persisted for the whole season, fell by 38c to $3.86/kg milksolids (MS) equivalent.
Whole milk powder (WMP) prices dropped a massive 10.8% to hover just above US$2000/tonne, a despairing level not seen since the global financial crisis and the commodities price bust of 2007-08.
WMP was now worth only 40% of its buoyant $5000/tonne during 2013-14 when China’s demand was insatiable and Fonterra’s milk price ended the season above $8/kg.
No matter what volumes of milk Fonterra could send into non-powder processing plants in the spring flush the fundamental lack of WMP demand would hang over the season like a fog.
GDT contracts for delivery in September and October were down 12.5% and 13.5% respectively while the NZX Dairy Futures market had bids between $1910 and $1950/tonne, an indication the market would get even worse.
ANZ Bank rural economist Con Williams quickly revised his 2015-16 milk price forecast downwards by 60c-plus to $4.50/kg.
ASB Bank rural economist Nathan Penny cut 70c to publish a new forecast of $5/kg.
NZX AgriHQ dairy analyst Susan Kilsby cut 45c from her forecast to $5.05/kg but Westpac Bank senior economist Michael Gordon held his nerve at $5.40/kg.
“Notwithstanding the fact that there’s still huge uncertainty around the near-term outlook for world prices, we see no reason to change our forecast,” he said.
“As for other agricultural exporters, a weaker currency will prove to be a windfall for many of them.”
If world markets were to drop to US$2000/tonne average for the basket of NZ dairy products and companies hedged at US70c, the milk price outcome would be below $4/kg.
Williams said the latest GDT auction suggested the market was going to struggle to digest higher seasonal powder volumes from NZ over coming months.
“It also suggests most buyers’ immediate demand requirements are covered.”
If the GDT system was struggling to clear 40,000 tonnes of WMP a month during June and July then it was certainly going to have price indigestion when the rostered 60-70,000 tonnes was offered in August and September, analysts noted.
Tighter supply from the big three exporters (NZ, Europe and the US) would be needed to turn the market, Williams added.
NZ farmers were bearing the brunt of the low world prices while their northern hemisphere counterparts were somewhat better placed (because of the huge domestic markets) and yet to arrest milk production.
Federated Farmers dairy section chairman Andrew Hoggard said some scary numbers were being bandied around now for the season forecast payout, which were not pleasant to hear.
"Our advice hasn't changed in the last year.
“We've just got to keep looking at our businesses, readjusting.
“I have been thinking about it this morning – what cow numbers should I drop, trying to make the business more resilient."
Both the ASB and the ANZ said they expected three further cuts by the Reserve Bank in the Official Cash Rate, down to 2.5%, as a consequence of the depressed dairy prices.
