Dairy price fall prompts NZ dollar drop
Prices have fallen at the latest GlobalDairyTrade (GDT) auction and that has prompted a fall in the value of the New Zealand dollar.
The GDT Price Index fell 7.4 percent to an average of US$2569 per metric tonne. It follows a fall of 3.1 percent at the last auction.
Both whole milk power and skim milk powder prices fell by 8 percent.
Whole milk powder is a crucial product for Fonterra because it has a major influence on the payout to farmers.
The result saw the New Zealand dollar lose ground. The Kiwi was trading at 66.75 US cents at 6am, compared to 67.39 cents at 5pm yesterday.
It was down 1.3 percent overnight against the Australian dollar, trading at 93.09 Australian cents. The fall in value against the Australian dollar began before the auction, after the Reserve Bank of Australia announced that economic conditions are improving across the Tasman.
The Kiwi was trading at 43.35 British pence at 6am, compared to 43.76 at 5pm.
Dairy analysts at AgrHQ have decreased their forecast milk price forecast by 56 cents to $4.71/kg milk solids. This is comparable with Fonterra's current 2015-16 milk price forecast of $4.60 per kilogram of milk solids.
"The fall in the AgriHQ 2015-16 Farmgate Milk Price is driven by both a drop in GDT prices and lower expectations for dairy commodity prices for the remainder of the season," says dairy analyst Susan Kilsby.
Regular grade whole milk powder offered by Fonterra, for January 2016 delivery, failed to move from its starting price which was 15 percent lower than the previous auction price.
AgriHQ says the NZX Dairy Futures market shows a very flat outlook for dairy commodities through to the end of the 2015-16 dairy season.
"The current outlook for the dairy markets means it is now unlikely Fonterra will be able to lift its farmgate milk price from its current forecast of $4.60/kg [milk solids]," says Ms Kilsby.
"There is ample supply of dairy product available in the global market and buyers generally have plenty of stock on hand so there is little urgency for them to secure additional stock. The reduction in milk being produced in New Zealand is being offset by European dairy farmers producing more milk. Until global milk supplies drops further, prices are likely to remain subdued."