Each month the milk monitor delves into the dairy industry and gives us the low down on the good, the bag, the ugly and everything in between.
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Milk powder prices have slid over the past seven GDT auctions, however, it is still very early in the season.

The seventh consecutive fall in dairy prices might have some wondering if the shine has finally started to come off dairy prices.

Certainly, the risk to the $7.25-$875/kg MS milk price being downgraded has certainly heightened, with most of the banks and NZX revising their new season’s forecasts.

ASB dropped its forecast from $8.20-$7.90/kg MS, while Westpac retained theirs at $8/kg MS.

There’s no need to panic – at least not yet – for a couple of reasons.

Firstly, the milking season has barely begun and it would be more concerning to see this sort of trend remain over spring and into peak milk.

NZX said as much in its commentary when it lowered its forecast.

“It is not uncommon to see downward pressure on prices at this point in the season, and the market was bound to come back into balance, as global milk production has been ramping up, as we’ve seen in the US,” it said.

“Currently, there seems to be no real red flags in the market saying that consumption has shifted, or the market has turned its nose up at dairy. It is also important to remember at this time of the year, milk price volatility is very real.”

But there’s clearly been weakened demand.

NZX senior dairy analyst Amy Castleton says Chinese buyers appeared to be less willing to pay premium prices in its quarterly global dairy update released in July.

“We’re now starting to look at volumes that will ship in New Zealand’s peak milk-producing months, so the balance has shifted, with supply now starting to outweigh demand,” Castleton says.

She says the good volumes of milk production in late autumn in NZ may also have contributed to the July 6 GDT decline, where it dropped 3.6%.

Likewise, ASB says the downward trend was a clear sign that prices were losing momentum.

“We knew dairy prices wouldn’t sustain these heights forever, but prices are falling a bit faster than we’d anticipated. This is now the fourth consecutive auction where WMP prices have fallen 1.5%-3.5%. And the fact that prices have continued to fall, even as Fonterra has reduced the amount of product on offer, clearly shows that the demand and supply balance is shifting in the direction of buyers rather than sellers,” it says in its Commodities Weekly publication.

Then there is the covid factor.

The wave of delta variant infections around the world hit commodity markets prior to the auction, a point Westpac senior agri economist Nathan Penny made in the bank’s dairy update.

“It’s no surprise that dairy prices dropped at the auction overnight,” Penny says.

The 2.9% fall was separate to the previous falls, which he says were caused by the very strong end to the NZ dairy season, where March-May production was up 10% on the same three months back in 2020.

He says the recent cold snap in July and lack of winter feed in some regions could see a quiet start to spring production.

But finally, and arguably most importantly, prices are still historically high and despite the downward trend, farmers are still looking at a decent milk price.

Sentiment was also improving as evident in Rabobank’s latest rural confidence survey on the back of these good prices. This is despite outcries over government policies and nationwide labour shortages.

The nationwide protests on July 16 have also given farmers a much-needed shot in the arm for their morale as they enter the busiest time of the season with calving underway in many places in the North Island.

Last month, 14 of our dairy farms in Maine, as well as dozens of dairy farms across northern New England, got an unexpected and disappointing notice from Danone of North America saying that they were discontinuing their contracts with our organic dairy farmers in Maine, New Hampshire, Vermont and elsewhere.

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