The NZX milk price forecast fell to $6.76 after the latest GDT auction and the futures market reaction in the following 24 hours.
Whole milk powder prices fell 4.3% to US$3006/tonne and have now fallen 10% over seven successive fortnightly auctions since mid-March.
Participants in the futures market believe WMP prices will stay below $3000 for most of the season, NZX dairy analyst Robert Gibson said.
To illustrate the effect of the fall in GDT prices, especially WMP prices, the NZX spot price fell 68c to $6.98.
The spot price is what farmers would be paid if the June 18 GDT prices applied to the entire dairy season at latest exchange rates.
ASB senior economist Chris Tennent-Brown said despite the latest GDT price falls there is enough fat in the forecast to stick with $7/kg.
“With NZ production growth past its cyclical peak and soft production growth for other major dairy exporters we anticipate that dairy prices can push towards cyclical highs later in the season.”
Butter and cheese prices were down 5.7% and 4.3% respectively, reversing gains made for those products earlier in the year.
“WMP prices are consolidating as the market awaits the normal spring lift in NZ milk production.
“This was the largest auction since mid February so that may have contributed to the sogginess of this auction.
“Powder volumes were up on earlier events, front-loaded into the early contracts.”
Westpac economist Satish Ranchhod said the latest GDT results create downside risk to the bank’s prediction of a $7.20 milk price.
The GDT index has fallen back to its end-of -January level.
“Looking to the remainder of the season the outlook for auction prices is mixed,” Ranchhod said.
The United States Department of Agriculture recently reported cuts in its forecasts for production in both 2019 and 2020 citing reductions in cow numbers, falling production per animal and rising costs.
However, slowing economic conditions in some key trading partner economies, including China and some European countries, signal headwinds for prices.
