The early promise of a boomer season for dairy is now fading rapidly, as falling world prices translate to smaller payouts at the farmgate.
On Friday Fonterra announced a second downward revision to its forecast payout for the 2008/09 season to $6.00 per kilo of milksolids, compared to forecasts of $6.60 in September and $7.00 at the start of the season in May. We estimate that this will reduce industry-wide farmer payouts from around $10.1bn in the previous season to around $8.3bn, despite an 8% increase in production after last season’s drought (weather permitting).
World prices for dairy products have fallen sharply as a pickup in overseas supply (from unusually low levels) collides with waning global demand. US production is up around 2% on last year, but a large share of this increased production has hit the export market – exports of cheese are up 48% year to date.
Consequently, milk powder prices have more than halved from the peaks seen a year ago; butter and cheese are now following powder prices lower. Casein prices fell 22% just in the first two weeks of November. We had expected a halving of dairy commodity prices the entire season as global supply recovered, but the speed of the decline has been startling.
