Whole milk powder prices fell by 7.3% on average, losing US$284 to finish at $2905/tonne.
Prices paid for different contract periods (deliveries spread over the next six months) fell by 6.6% to 11.7% and most of the Fonterra grades offered made about $2900 versus $3100-plus a fortnight ago.
Such a fall in WMP prices will be a 30c/kg impact on the farmgate milk price, not including the effects of reductions in butter, cheese and skim milk powder prices.
AgriHQ dairy analyst Amy Castleton said the impact of the WMP price movement was softened by depreciation of the New Zealand dollar against the United States dollar since the previous GDT auction on June 20.
The NZD was down US2c to 67.5c, which produced a 20c/kg benefit to the milk price forecast.
The AgriHQ computer forecast, using the latest GDT results and the futures market reaction for forward pricing, had lost 8c since the previous GDT event, to now sit at $6.60 while the AgriHQ spot price dropped 42c to $6.66. The spot price is the farmgate milk price calculated if all the season’s production was sold at latest GDT prices.
And the NZX milk price futures contract fell 22c to $6.60 during the day after the latest GDT auction and 20 lots or 120,000kg milksolids were traded.
Westpac economist Anne Boniface said volatility in dairy prices from fortnightly auctions isn’t unexpected and one set of results doesn’t make a trend.
However, Westpac had warned of weaker dairy prices because of slowing growth in China, one of the reasons its forecast was $6.40 in contrast to Fonterra’s $7.
In one auction WMP prices had fallen to the lowest level envisioned for the whole season, increasing the downside risk to $6.40.
“Fears around the impacts of global trade from escalating trade tensions may also have weighed on prices,” she said.
The US had initiated tariffs on imports from some of its biggest trading partners and retaliation had included Mexican tariffs on US cheese exports up to 25% and Chinese tariffs of 25% on US dairy exports including powder products.
“As the auction shows the biggest threat is that we get caught in the downdraft of a slowdown in global trade which puts downward pressure on commodity prices across the board.
“It’s certainly this fear that has been weighing on financial markets,” Boniface said.
ASB senior rural economist Nathan Penny said NZ stands to benefit from China’s tariffs on US dairy products, making our products cheaper and lifting demand.
But dairy buyers are more nervous about the fallout from the increasing trade tensions and the potential impact it could have on dairy demand.
The Chinese renminbi had weakened 3% against the US over the past fortnight, keeping pace with the NZD weakness.
Rabobank dairy analyst Emma Higgins chose to delve into milk price forecasts with some scepticism that Fonterra will collect 1.3% more this season compared with last.
Given its shrinking market share and the imminent opening of Open Country Horotiu and Mataura Valley in Southland, Fonterra’s aspiration suggested very strong national growth.
Higher milk production is possible with higher prices and favourable weather but there are also environmental constraints and rising onfarm costs to be considered.
On balance, Higgins thinks 2% growth is possible but favourable weather in the spring will be the main determinant.
