On the Global Dairy Trade, the price index fell 9.3 per cent at a bimonthly auction. Prices are the lowest in the history of trading on the site.
New Zealand’s dairy industry is more exposed to world prices than Australia’s industry, and farmers there are doing it tough.
NZ Federated Farmers dairy chair Andrew Hoggard said for the majority of farmers, the price for milk was below the cost of production.
«It’s pretty much been deja vu for the last year. Every fortnight there’s been the same news,» he said.
«We’ve been living with this for the whole year. We just have to hope that we’re getting close to the bottom.»
Milk prices in New Zealand are linked to global dairy trade results.
Mr Hoggard said few New Zealand dairy farmers were making money.
«Most, virtually all, except for those without any debt at all, won’t be making a profit.»
Mr Hoggard said the last time it was this tough was in the 1980s.
Milk processor Fonterra has a meeting on Friday, with New Zealand suppliers expecting another step down in milk prices.
Australia ‘largely immune’ from global crash
Dairy heavyweights Russia and China have combined with a worldwide boost in production to flood the dairy market, according to Ian Halliday, managing director of Dairy Australia.
«[Prices] have certainly dropped off in the last six months or so. I think our assessment would be very much that China bought a lot of product in 2013 which is still moving through [the market],» he said.
«Then we had the Russian ban imposed last year that meant well over 600,000 tonnes of product was displaced and had to be moved elsewhere, and with that, in the 2013/14 period, we had New Zealand up 10 per cent on volume and the US and Europe were up both up 1-2 per cent on volume.
«Unfortunately, what’s happened in the last 18 months is a slowdown of demand, not so much consumption.
«The world has just become flush with dairy products and that’s really been the cause for the downturn in prices.»
Mr Halliday said the Australian dairy industry had largely been immune from the crash in global prices because of a strong local demand and diversification from processors.
«New Zealand dairy prices have gone from well over $8 per kilogram of milk solids to the low $4 dollar mark, so it’s a very difficult period for New Zealand dairy industry, but our milk prices seem to holding up pretty well,» he said.
«Most of our processors have opened with a price of around $5.60… so I think it’s a watching brief at the moment.
«I know a lot of dairy farmers are nervous about what this year’s outlook might be.
«But the fact is that we have a reasonably strong domestic industry. From a demand point of view, 55-60 per cent of what we produce is sold domestically and the balance is sold on the export market.
«I think our processors have done a good job in terms of diversifying, whereas New Zealand [is focused on] skim milk powder and whole milk powder.
«A lot of our processors are producing infant formula, cheese, UHT milk and other higher value products, so it’s created a bit of immunity for the Australian dairy industry.»
When will prices turn around?
Despite the flood of dairy products, worldwide production continues to grow, according to Robert Chesler, vice-president of the dairy group at FC Stone, at Chicago in the United States.
«The hotly debated topic is, when is the turnaround? Does it come later this year? Does it come early next year? And what does it look like?» he said.
«No-one has that type of crystal ball, but it certainly does feel that, based on historical trading ranges, we shouldn’t have a whole lot more room for the downside on a percentage level.
«I think that when [the rebuild] comes it will come sharply. That doesn’t mean that it will come up 100 per cent, but when the price impact comes, usually it comes sharply.»
Source: ABC
