International dairy prices fell to a 13-year low in the GlobalDairyTrade auction, a trading platform established by New Zealand’s Fonterra Co-Operative Group.
The GDT Price Index fell 9.3% overnight Tuesday from the previous auction on July 15, with the average selling price at US$1,815 a metric ton, the lowest since 2002. The index covers a variety of products and contract periods and is viewed by the dairy industry as a market reference price.
The average selling price for whole-milk powder was US$1,590 a metric ton, down 10% from the prior auction.
The dairy industry is the backbone of New Zealand’s economy, accounting for more than a quarter of exports. But global dairy prices are down 64% since early 2014, and many of the country’s farmers are operating below the break-even level.
“Farmers now face two consecutive seasons of extremely low milk prices. Very few farmers will be able to turn a profit at such a low milk price,” said AgriHQ dairy analyst Susan Kilsby.
The weak dairy price, coupled with a slide in other commodity prices “paint a grim picture for the agricultural sector, and with the prospect of a severe El Niño event this summer, the New Zealand economy in this sector is set for an increasingly difficult period,” said Stuart Ive, private client adviser at New Zealand trading firm OM Financial.
The Reserve Bank of New Zealand, the country’s central bank, has flagged the dairy sector as a major risk to financial stability.
Dairy prices have suffered because of world-wide overproduction, subdued demand from important markets such as China, and a glut sparked by Russia’s ban on U.S. and European food imports.
As a result of the soft auction, economists are reviewing what they expect Fonterra to pay its shareholders for their milk solids in the current season. Fonterra is forecasting a payout of 5.25 New Zealand dollars (US$3.43) per kilo of milk solid but is widely expected to lower that forecast at its board meeting Friday. ANZ Bank expects Fonterra to pay NZ$3.50 per kilo of milk solids.
“A NZ$1 drop in the milk price equates to approximately NZ$2 billion less income for dairy farmers,” Ms. Kilsby said.
Products on offer at the GlobalDairyTrade auction include whole-milk powder, skim-milk powder, butter, cheese and anhydrous milk fat.
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