Overall dairy prices fell 3.1% at this week’s Global Dairy Trade auction, following a combined lift of 63% over the four previous auctions (WMP was up over 80%).
According to Nathan Penny, Rural Economist with ASB bank in New Zealand, the fall was in contrast to its expectation for a small increase within the 0% to 5% range.
At the auction, both WMP and SMP prices posted slightly larger falls, dipping 4.6% and 4.5% respectively.
“We interpret this fall as markets taking the opportunity to take stock of the recent surge in prices. Since the last auction there has been nothing to suggest that prices should fall,” he said.
In fact, he said weak Fonterra production data if anything confirmed that New Zealand production is indeed in decline.
He said with that in mind, he expects the pause in price lifts to signal a more gradual pace of price rises over the remainder of the season.
“Farm cashflows remain very tight, cow numbers are down significantly and growing conditions are still playing catch up from the poor early spring.
“Moreover, with peak milk production close there is little prospect of making up the lost ground later in the season,” he said.
Penny said after four bumper auctions and with the market now having factored in weak New Zealand production, he expects dairy auction prices to lift more gradually over the remainder of the season.