'Somewhat of a puzzle': Economist surprised by dip in global dairy prices

ASB Rural Economist, Nathan Penny had expected prices to be unchanged.
ASB Rural Economist, Nathan Penny had expected prices to be unchanged. Photo credit: Supplied

A rural economist has described an unexpected fall in global dairy prices as "a bung note in an otherwise good symphony". 

Dairy prices fell an average of 5.1 percent in the latest global auction in the first significant fall since August.

Whole milk powder fell 6.7 percent while skim milk powder was down 6.3 percent.

ASB Rural Economist, Nathan Penny said he had expected prices to be unchanged and the fall was a surprise.

He said the drop also undid much of the price strength over the past three months. 

"For example, at one stage, overall auction prices had lifted over 8 percent since the end of September. After the result overnight, that lift now stands at a more modest 2 percent," said Penny. 

However, he said dairy prices had generally performed strongly over the first half of the 2019/20 season and the drop wasn't expected to have a major impact on farm incomes.  

"We remain positive on the dairy outlook and maintain our 2019/20 milk price forecast at $7.50/kg."

Notably, over 60 percent of this season's product had already been sold.

"It remains somewhat of a puzzle as to why prices fell overnight. Fundamentally, nothing has changed in global dairy markets." 

Penny said New Zealand and global dairy supply remained tight and there were no signs that global demand had shifted.