«Current global commodity prices in dairy are easily low enough to shut off taps globally. The problem is those low prices have not been passed onto farmers in many regions of the world,» said Tim Hunt, the global agribank’s head dairy strategist on a visit from his New York base.
«(With) these current (GDT) auction results of low US$2000 a tonne, there is no farmer in Europe or the US or Latin America who can make money on that. The problem is that New Zealand farmers are the only ones who are at the moment getting the farmgate signal that reflects that.
«In Europe milk prices are much higher than in New Zealand – the same in the US and in China. It’s not they are more competitive than New Zealand, they’re just getting different milk prices at the moment.»
A string of recent price dips in Global Dairy Trade (GDT) auctions, and more grimly, in average prices for New Zealand export staple and farmgate milk price decider, wholemilk powder, has perplexed Kiwi farmers who had been told by market watchers that prices would be on a recovery track by now due to overseas dairy producers reducing production in response to the unsustainably low returns reflected on GDT.
Hunt said the market had been sending a signal since April «that the world has too much milk production that we are struggling to slow down».
«Demand has slowed down and that is resulting in (dairy product) stock accumulation. We may have pressed the bottom, but it’s too early in the cycle to contemplate a sustained recovery phase in this calendar year,» he said.
The price signal wasn’t getting through to European producers because their currency had weakened and their co-operatives were propping up the milk price in support of farmers through the low price cycle.
«Also (European) quotas have come off which is leading to a certain amount of price-insensitive investment coming onto the market. Farmers there have been gearing up to expand at this time and that, in the short term, is pretty insensitive to prices.»
In the US, not only were grain prices low, but there was an «extremely large» butterfat premium, Hunt said.
The price of a kilogram of butterfat was twice that earned by Oceania region dairying.
Key market shifts were coming, Hunt said.
Rising imports of butterfat into the US would see that market collapse and push down domestic milk prices.
«In Europe, we expect wholesale market commodity prices to fall further and for co-ops to reduce the support they are able to give their farmers to prop up the milk price.»
Given a prediction the farmgate price signal would finally reach other export regions in the first half of next year, Hunt and his team of 12 dairy research analysts believed the market would enter a sustained price recovery phase around the middle of next year.