Exchange rate a silver lining

However, ASB economist Nathan Penny says while the falling dollar has offset much of the drop, dairy prices need to start coming back soon.

ASB has dropped its forecast payout for this season from $5.70/kgMS to $5/kgMS as last week’s GDT recorded a 5.9% drop in the index.

Worryingly, the biggest fall was recorded by whole milk powder; the key commodity slumped 10.8% to US$2054/metric tonne. Skim milk powder is down 5.8% to US1875/MT.

Penny says while a drop was expected, the magnitude of price falls in WMP and SMP prices were surprising.

He says the exchange rate is expected to drop further and the bank is also forecasting more interest rates cuts by the Reserve Bank; this should lead to lower interest rates for farmers borrowing money.

“There has been a chunky fall in the exchange rate and this has offset much of weakness in price,” he told Dairy News. “But we still need prices to recover to get to $5/kgMS.”

Federated Farmers Dairy chairman Andrew Hoggard says the mood among Federated Farmers delegates at their annual conference was one of disappointment. Farmers were shocked by the sharp fall in WMP price.

“We were thinking the prices may have hit rock bottom in recent weeks so the 10% drop in WMP prices is shocking.”