Global milk prices could slide further

If current trends continue milk prices could head lower, according to New Zealand bank ASB.

Global dairy prices continued to slide yesterday at Fonterra’s latest auction, overall dairy prices recorded a further 8.9% fall on the back of a circa 5% fall in the auction a fortnight prior, with WMP prices down 10.9%. ABS noted that, compared to the same time a year ago, prices are down by around a third.

Nathan Penny, Rural Economist for ABS noted that dairy prices have come under sustained pressure since the turn of the year, particularly from extra global milk supply. Overall, prices have fallen 35% since February, with WMP prices down nearly 39%.

He said: “This pressure firstly came from the stellar NZ production season where production has lifted by around 10% the season prior. Production has also lifted strongly in Europe and to a lesser extent the US and China.”

ABS says that factoring in these recent falls it has lowered its 2014/15 New Zealand milk price forecast to $6.20 per kg of milk solids.

It adds: “While we continue to expect that dairy prices will recover over the remainder of 2014, if current trends continue, then possibility of a sub-$6.00 milk price will continue to rise.”

ABS outlines that these falls are more than it had factored in previously. In its most recent commentary it had noted that dairy prices were expected  to stabilise through the middle of 2014 before recovering.

“We would thus expect to have seen clearer signs that prices were stabilising at this juncture. But these signs have yet to emerge,” it said.

“With this in mind, we have revised down our milk price forecast for the 2014/15 season by 80 cents. We now forecast a milk price of $6.20/kg of milk solids, compared to our $7.00/kg forecast from back in May.”