Global dairy prices have plunged to a 13 year low, with whole milk powder suffering particularly sharp losses.
“We can expect dairy prices to recover in the medium term thanks to still-increasing Asian demand. and the government is still keeping its focus on budget discipline combined with market-oriented, yet incremental reforms”, executive director Oliver Hartwich said.
The New Zealand dollar last traded at US66.04 cents at about 2.20pm on Wednesday in New York, compared with US67.00c at 5pm in Wellington the previous day.
Federated Farmers’ former Southland president Russell MacPherson said it was not a matter of dollar figures.
Industry sources say Chinese processors are still working through stockpiles of imported milk powder, prized over domestic offerings due to past safety scares, which is used in everything from confectionary to baby formula.
Rabo still believed global dairy markets would start to tighten at the end of this year and more strongly into 2016 as supply and demand come back into balance.
“Futures prices have now moved to be trading at a discount to the physical market with traders now predicting further falls in prices over the coming months”, Michael Peters, a dealer at OMF said in a note.
It is expected to announce price guidance for Australian farmers soon.
“When I saw it I thought, wow, it now seems there is no reason for it to stop there”, he said.
“The New Zealand economy is facing challenges”.
Traders continue to price in substantial declines in dairy prices with production numbers in dairy being up in many regions around the world.
Dairy accounts for a staggering 29 per cent of all New Zealand’s merchandise exports. “Given that 20-30 per cent of farms are already so heavily indebted that the Reserve Bank thinks it’s a fundamental risk to New Zealand’s economic stability, this is a seriously worrying problem” – Green Party primary industries spokeswoman Eugenie Sage.
Unfortunately as yet, there is little evidence USA and European farmers are reducing production and the worlds oversupply of dairy commodities may take some while to slow.
The surplus would typically be dried and turned into skim milk powder for animal feed. Since late May, roughly 800,000 litres of that liquid has been dumped into manure pits, called “lagoons”, according to the Dairy Farmers of Ontario. “The overheating of the Auckland housing market thanks to artificial supply constraints needs to be addressed urgently”, Dr Hartwich said.