The price index lost 0.7% and now sits at its lowest level in almost two years.
Average price movements for different dairy commodities included a 2.8% fall in butter, a 2.2% drop in whole milk powder, a 2.2% rise in skim milk powder and a 4.2% rise in cheddar.
The 13% decline in the market over the past three months has been attributed to a variety of supply and demand factors, chief among them the seasonal build-up to peak milk production in New Zealand.
Buyers seem to assume NZ output will rebound this spring after two poor years.
“An expectation of softer dairy prices over the second half of 2018 has underpinned our $6.50 milk price forecast for some time,” Westpac senior economist Anne Boniface said.
“We continue to view even Fonterra’s revised $6.75 forecast as too optimistic and it appears wary of the prospect of further downgrades, advising farmers to budget with caution.
“Similarly, the NZX milk price futures have also been falling and are now predicting a $6.47 milk price, down from $6.90 at the start of the season.”
Boniface said the bank’s forecast incorporates WMP prices at US$2800/tonne and some further weakness in fat prices.
Historically, 12% of NZ’s annual milk production comes in September and by the end of the month the year will be 20% fulfilled.
Collections in June and July ran 8% higher than last season.
In the four months from September to December NZ will produce half of its annual 1.85 billion kilos of milksolids, 95% of which will be exported in processed products.
“Anecdotally, farmers in many regions are happy with current pasture conditions in contrast to the soggy conditions of this time last year,” Boniface said.
Fears of an El Nino climate effect during summer, with above-normal temperatures, dry conditions in the east and wet in the west, are uppermost in farmers’ minds.
The usual remedy for lower pasture availability, imported palm kernel, is now less attractive because of Fonterra’s financial penalties.
ASB senior rural economist Nathan Penny called the latest GDT price declines a seasonal drift downwards that fits the price weakness normally seen at this time of the year.
Global supply and demand seem largely balanced and NZ production is going to lift moderately, about 2% year-on-year.
Penny thought dairy product availability from other producing countries is being affected by dry weather and demand factors are mixed but overall relatively positive.
Milk production in June for both the European Union countries and the United States was up 1% compared with June 2017 while the 12-month running total is plus 3% in the EU and plus 1% in the US.
Exports from both regions have increased significantly over the past 12 months, up 330,000 tonnes or 7% from the EU and 190,000 tonnes or 9% from the US.
NZ exports about 3m tonnes annually.
