December 20, 2013

In the coming months, world milk prices are likely to stay at record levels but they are predicted to fall by the end of next year, as shown by the latest dairy auction.

Fonterra's fortnightly Global Dairy Trade Price Index rose 0.2%, with an average selling price of US$4,990/tonne.

Volumes fell 7.9% from the previous auction, reflecting the seasonal drop in milk production in New Zealand.

Benchmark whole milk powder prices fell 1.5%, while rennet casein surged more than 7%.

Fonterra cut its forecast dividend pay-out last week, saying the gap between record high milk powder prices and other products was squeezing margins.

BNZ senior economist Doug Steel says the gap is still very wide. He says that even though prices are very high compared to a year ago, the market is still suggesting that in the first half of next year the prices will move still higher.

"We're a little sceptical of that, we think there's going to be a lot of milk coming on stream globally, partly in response to the current high prices, and when that milk actually arrives maybe prices start ticking downwards, certainly by the end of the year, next year, we think prices will be lower than they are now."