The GDT index fell 3.5% after the auction on November 21, the twelfth consecutive fall or sideways movement since mid-May.
World prices are now 20% below their 2018 peak and 12% lower than this time last year.
Season-to-date milk production has been 6% more than 2017 and that growth might return NZ to its previous seasonal record output of 2014-15, four years ago.
The Dairy Companies Association said 271 million kilograms of milksolids were produced in October, 6.5% more than last October and fractionally more than October 2014.
October provided 15% of the season’s total and pasture growth prospects for November and December remain favourable for milk output.
ASB senior rural economist Nathan Penny said September to December accounts for half of the season’s production.
Therefore, an El Nino summer and dry weather will not be enough to derail the season’s expected record production.
The ASB production growth forecast was revised from 4% to 5% and the farmgate milk price forecast cut by 25c to $6/kg MS.
“NZ production strength is proving too much for global markets to absorb but, fortunately, production is relatively soft in Europe, the United States and Australia.
“But NZ’s large share of global dairy exports, particularly of whole milk powder and butter, means the mini glut is leading prices lower.
“As a result we have trimmed our milk price forecast to $6.
“In net income terms the higher production is not enough to offset the lower milk price.
“We estimate that farmer incomes will be $370m lower as a result of the forecast changes,” Penny said.
That is a $30,000 impact on the average-sized farm.
The GDT results were a mixed bag with prices for butter and anhydrous milk fat falling 9.6% and 9.4% respectively, while whole milk powder fell only 1.8%.
The futures market had expected GDT price rises and quickly adjusted its levels after the auction.
NZX analyst Amy Castleton said WMP futures have declined between US$15 and $50/tonne but there is still a rising curve on next year’s price expectations.
WMP for June 2019 is at US$2890, about $290 above the GDT average of $2599. The WMP price average is the lowest on GDT it has been since August 2016.
Because WMP forms such a large portion of NZ export products analysts think Fonterra will have to pick a forecast number below its $6.25-$6.50 range for the farmgate price.
Fonterra is required by the dairy industry regulations to make a single figure forecast in December, expected to be released after the board meeting, along with the second quarter trading figures.