Dairy prices have started the year on a sour note, with prices falling at the global dairy auction overnight

The average price dipped 2.8 percent to US$3365 a tonne, this follows a 3.8 percent fall at the previous auction late last year.

The price of wholemilk powder, which is the ingredient Fonterra sells the most of on the auction platform, dropped 1.4 percent to US$3208 a tonne.

Since peaking at record highs in March 2022, dairy prices have been generally falling amid oversupply and weaker demand.

NZX dairy insights manager Stuart Davison said cost of living pressures were impacting people’s shopping habits.

“So we’ve seen that globally… as interest rates are driven up because of inflation… we see consumers start to move down the spending ladder and dairy is often seen as a luxury.”

Those buying product on the auction platform were very concerned that consumers were going to want less dairy going forward, Davison said.

“They’re still in that we call ‘hand to mouth’, sort of buying pattern, where they’re not willing to take large volumes [of product.]”

The auction demonstrated the Macro situation globally was leveraging on the dairy market like it was for other commodities and markets, Davison said.

“This auction also suggests that there is more pain in store for dairy in 2023, with the Macro picture likely to get worse before it gets better.”

This latest result at the global dairy auction put Fonterra’s milk price forecast of for the 2022/2023 dairy season under threat, Davison said.

The midpoint of Fonterra’s forecast range for is currently $9 a kilogram of milk solids.

Davison also expected the upcoming 2023/2024 dairy season to open with a lower milk price forecast than expected.

“So expectations are the next season’s looking poor as well, we might be seeing two years of sub $9 payouts.”

Source : RNZ Jan 4th 2023