That follows another fall in the Global Dairy Trade auction prices on July 17, down 1.7% on an index basis, led by an 8% fall in butter prices.
That outweighed a 1.5% rise for key index component whole milk powder after its sharp fall earlier in July and skim milk powder rose marginally.
The futures market had been expecting a slight WMP price fall.
Tuesday night’s GDT reading was the fourth fall in a row.
AgriHQ has reduced its 2019 year payout forecast to $6.53/kg MS, from $6.68 in late June and from $7.03 at the start of May, which was close to Fonterra’s $7/kg MS forecast.
ASB Bank rural economist Nathan Penny said given international trade concerns and currency movements the downward move could have been worse.
He thought there were signs of the market stabilising, especially with WMP and SMP, saying a 9% index fall in two months is modest, given historical falls in the 20% range.
ASB’s forecast remains lower at $6.50/kg MS.
Westpac’s is lower still at $6.40.
In her post-GDT review senior economist Anne Boniface said fortnightly auctions can be volatile but the latest subdued result suggests genuine softness in demand for dairy commodities.
That was likely to reflect weaker demand in China and concerns around the impact of trade tensions involving the United States.
She noted that despite the latest fall, with butter down 13% since May, fats prices, including butter and AMF, remain at historically high levels, if off their recent peaks.
WMP has the biggest influence on the NZ milk price.
AgriHQ analyst Amy Castleton said short date futures contracts have lifted slightly in value but longer dated contracts have eased, resulting in a very flat forward outlook, rising from US$2940/tonne in August to just US$3050/t in May next year. SMP is priced to ease into year-end then season-end.
Forward pricing for butter has flipped around, from expecting prices to continue easing through the season to now expecting them to rise but with a fairly flat trend overall.
Milk production levels aren’t a factor in the GDT, with peak NZ production levels still two to three months away, she said.
Though agreeing with Westpac that markets remain nervous about US-China trade relations, Penny said relatively healthy global dairy demand is still underpinning prices. A large chunk of the of the downward price move is caused by lower currencies in key markets, with the Chinese yuan down 5% against the US dollar in the last two months.
“Nonetheless, we expect dairy market nervousness is likely to continue in the short term, particularly as the trade tensions could escalate further.”
It is a watch-this-space situation, he said, describing market actions as hints of temporary uncertainty rather than a fundamental change in demand.
While sticking with a $6.50 forecast this time, ASB noted the increased risks around the trade issues.
