DAIRY PLUNGE CONTINUES. The 9.3% fall in prices from the GlobalTradeDairy auction to USD1,815 per MT was about as bad as it could have been. Since the March 4 auction the cumulative fall in average dairy prices has been a whopping 46%, taking the level of dairy prices below GFC troughs and to around 12 year lows. A look at the components showed broad-based falls, led by anhydrous milk fat (-11.7% to USD 2,253), skim milk powder (-14.4% to USD 1,419 per MT), and with whole milk powder prices (WMP) down 10.3% to USD 1,590 per MT – less than half of March 4 contract prices. A look at the contract periods for WMP shows not all product offered in the September and October periods was sold, and sizeable falls over the November to February 2016 contract periods (ranging from -10% to -23.4%). The volumes sold on the auction portal were significantly up, with 46,527 metric tonnes sold, the highest since last October. Given that the next seven auctions account for a significant chunk of annual (GDT) WMP sales, it doesn’t take a rocket scientist to work out that auction prices of the next two months will weigh heavily on the final milk price outcome for the 2015/16 season. The current $5.25/kg MS forecast may have looked reasonable a few months ago, but developments move quickly in commodity markets and we now expect a milk price in the mid 3’s/kg MS. Fonterra is due to provide an update of their milk price forecast this Friday, and signs are not looking good with the likelihood of a second successive season of low dairy incomes looking to be an inevitability. Coming on the back of the 3.7% fall in non-dairy commodity prices – revealed in yesterday’s ANZ commodity price index – this suggests a large pending terms of trade hit. Monetary conditions need to be more accommodative and the RBNZ are likely to follow through with a further rate cut in September. The NZD is following commodity prices downwards, but the sharp fall in dairy prices suggests more adjustment is needed.
ANZ has lowered its 2015-16 milk px forecast down from $3.75-$4.00 to $3.50