AgriHQ dairy analyst Susan Kilsby called the auction “a disastrous result".
Jason Walls talks about the 'brutal' dairy auction results on NBR Radio and on demand on MyNBR Radio
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See also: 'Brutal’ dairy auction not the bottom for prices
The Kiwi dollar slid after dairy prices tumbled at the latest auction while the US dollar gained strength on hawkish comments from Federal Reserve chairwoman Janet Yellen.
The New Zealand dollar last traded at US65.95c, compared with US67c at 5pm yesterday. The currency was trading above US88c a year ago. (See graph below)
This morning’s selloff was triggered by a sharp fall in dairy product prices in the latest GlobalDairyTrade auction, paced by cheddar and whole milk powder, reflecting a sombre outlook.
The GDT average winning prices sank 10.7% to US$2,082, down from US$2,276 at the previous auction two weeks ago. It was the lowest level since July 2009. Some 31,691 tonnes of product was sold, down from 33,200 tonnes of product two weeks ago.
AgriHQ dairy analyst Susan Kilsby called the auction “a disastrous result,” adding that “the NZX Futures market anticipated whole milk powder prices would fall overnight. However the market underestimated the size of the fall.”
“Farmers now face two consecutive seasons of extremely low milk prices,” Kilsby said in a note. “The majority of farmers can’t break even at such a low milk price.”
The AgriHQ 2015-16 Farmgate Milk Price decreased to $4.22 per kilogram milk solids, down 83 cents from a fortnight ago and $1.27 lower than a month ago. It compares with Fonterra’s 2015-16 milk price forecast of $5.25/kgMS.
“Farm debt levels will rise,” according to Kilsby. “Rural communities will suffer as farmers reduce spending to the bare essentials.”
Cheddar plunged 13.9 percent to US$2,613, while whole milk powder sank 13.1 percent to US$1,848 a tonne. Anhydrous milk fat dropped 10.6 percent to US$2,621 a tonne, while skim milk powder shed 10.1 percent to US$1,702 a tonne.
Butter slid 9.5 percent to US$2,460 a tonne, while rennet casein fell 8.0 percent to US$5,430 a tonne. Butter milk powder declined 4.4 percent to US$1,794 a tonne.
Bucking the trend, lactose rose 1.9 percent to US$549 a tonne.
There were 130 winning bidders out of 135 participating bidders at the 10-round auction. The number of qualified bidders dropped to 628, down from 652 at the last auction.
The milk price at auction has fallen by 63 per cent since 2014, putting pressure on New Zealand's economy, a large chunk of which depends on dairy production.
The volume of milk sold at today's auction also fell 4.5 per cent from the previous run.
The New Zealand dollar is extremely sensitive to GDT auction results as the dairy sector generates more than 7% of GDP. Economists are expecting further interest rate cuts after the Reserve Bank of New Zealand cut rates for the first time in four years as growth slowed to a two year low.
The Kiwi dollar also came under pressure as the US dollar firmed following remarks by US Federal Reserve Chairwoman Janet Yellen, who said economic conditions in the US will likely warrant a central bank interest rate hike later this year.
(BusinessDesk)
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