Milk prices may have bottomed out
The first signs that international milk prices could have bottomed out came this week, even as domestic prices continued to be cut.
A key New Zealand analyst signalled global dairy markets may move 30pc higher than forecast, but cautioned that prices within the EU may fall further.
Kerry cut its July price yesterday by 2c/l to 26c/l, while Glanbia Ingredients Ireland cut by 1c/l to 25c/l plus 1.5c/l for those signed up to the milk supply agreements.
It followed Lakeland Dairies' 1/cl cut to 27c/l, and leaves milk prices at levels below the cost of production, both domestically and internationally.
Three consecutive 10pc falls in the Global Dairy Trade auction dropped prices of milk powders to unprecedented lows, which analysts noted were lower than production costs, even in New Zealand.
However, ABS Bank's rural economist, Nathan Penny, believes that New Zealand milk prices for the coming season will be nearly 30pc higher than the 18c/l indicated by Fonterra bosses earlier this month.
Pointing to a 30pc premium over current auction prices for November deliveries, Mr Penny said this was a sign that markets believe that a drop in Kiwi output will lead to prices settling at closer to 23c/l for the coming season.
He claims that the price lift may not stop there, with Fonterra reducing the volumes of whole milk powder that it will offer at this week's auction. However, the analyst believes that the turnaround in price falls will take longer to materialise in Europe.