Pressure is building on Fonterra’s farmgate milk price as increased production led to the fourth drop in a row at the latest Global Dairy Trade auction.
Fonterra’s forecast, which under law has to be reviewed every three months, stands at $6.75/kg of milksolids.
Most banks have lowered their forecasts to around $6.25 to $6.50/kg.
A milk price around that level would not spell doom for dairy farmers, as it would still be comfortably above DairyNZ’s most recent estimate of break-even of $5.20 to $5.25/kg.
ASB rural economist Nathan Penny said most farmers would be making money at above $6.00/kg, and a 6.50/kg milk price would still be high historically.
Penny said a more moderate milk price would add some balance to the market — particularly as high prices tend to encourage farmers to increase production.
At today’s auction, the GDT price index fell by 3.4 per cent and the average winning price came to US$2970 a tonne.
The weakness was broad-based, with the largest falls in casein, down 12.6 per cent, skim milk powder, down 6.5 per cent and butter, down 5.9 per cent.
Whole milk powder prices — which have the greatest bearing on Fonterra’s farmgate milk price — fell 2.7 per cent to US$2778 a tonne, and the declines were across most of the contract periods through to April next year.
Since August 2, whole milk powder prices have fallen by 12 per cent.