Futures Point to Further Dairy Price Falls as N.Z. Volumes Rise

New Zealand whole milk powder futures are pointing to a further fall in prices at the GlobalDairyTrade auction Tuesday as Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, enters a seasonal peak of production.

December futures traded at $1,830 a metric ton in Wellington after falling as low as $1,725 immediately after the previous auction on July 15, NZX Ltd. data show. Contracts maturing in September, October and November are also trading below the whole milk powder average of $1,848 a ton set at the last auction.

Fonterra expects to offer 28,050 metric tons of whole milk powder today compared to 15,750 tons on July 15, when powder prices fell 13.1 percent. The increased volume may exert further downward pressure. Economists expect Fonterra to cut its forecast farmer milk payment for the season ending May 31, 2016, after a board meeting on Aug. 7.

“Futures prices are indicating another 6 percent fall for whole milk powder this week,” said Con Williams, rural economist at ANZ Bank New Zealand Ltd. in Wellington. “It doesn’t take a rocket scientist to work out that prices for the next two months will weigh heavily on the final milk price outcome.”

Williams expects Fonterra to drop its payout forecast to as low as NZ$4 per kilogram of milksolids from an earlier NZ$5.25 projection set on May 28.

Offer Volumes

Fonterra last week said it will reduce sales of whole milk powder through the GDT auctions by more than 46,000 tons, or about 9 percent, over the next 12 months, citing a possible drop in New Zealand milk supply and changes to the way its key customers are buying product.

The reduction “may arrest a further substantial decline” in auction prices, said Williams. He expects a period of stability in auction results in coming months.

Dairy prices have slumped to a six-year low amid a global glut and as China’s economy slows. The impact on New Zealand farmer incomes is starting to ripple through the domestic economy. Central bank Governor Graeme Wheeler has cut interest rates twice this year and signalled further easing.

The GDT auction is conducted tonight New Zealand time, during the European day.

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