Dairy prices fall to early 2004 levels as demand slumps

Dairy prices have fallen to levels last seen in the second quarter of 2004. Leading the way was a 64% fall in the average skim milk powder price to US$1,875 per tonne since its peak in August 2007, agridata.co.nz reported. Whole milk powder prices fell 61% from their high in August 2007 to an average of US$1,950/t in the first week of January 2009. Skim and whole milk powder prices were last at current levels in April and May 2004, respectively. The latest figures are yet another blow to New Zealand's biggest industry as global demand for commodities falls amid the current financial crisis. New Zealand export commodity prices fell 7.4% in world price terms in December and economists are warning that net exports will be a drag on economic growth in 2009. The Reserve Bank of New Zealand will be watching the fall of commodity prices very closely, as the reduction of inflationary pressures will give them more room to cut the Official Cash Rate further in 2009. The OCR is currently at 5.00%, down 325 basis points from July 2008. It is expected to reach 4% or lower by mid 2009. "We need to see inflationary pressures reducing significantly across the board, if we are to keep on easing monetary policy, thus helping the New Zealand economy to recover," RBNZ Governor Alan Bollard said in a speech on December 10. "That depends on all sectors of the economy responding to the reduced demand and not adding inflationary pressures to the system," Bollard said. In New Zealand price terms, skim milk powder prices fell 54% to an average of NZ$3,241/t from their peak in August 2007. Whole milk powder prices fell 50% to an average of NZ$3,371/t from their peak in August 2007. Butter prices fell to an average of US$1,950/t in the first week of January, 54% below their peak in November 2007. In NZ dollar terms, butter prices fell 40% from November 2007 to an average of NZ$3,371/t. Cheddar cheese prices fell the least of the four commodities monitored, yet still fell significantly. Average prices fell 50% in US dollar terms to US$2,2750/t from December 2007. In NZ dollar terms, average prices fell 34% to NZ$4,754/t from November 2007. Fonterra said on Wednesday that their own supply and demand analysis indicated that "we are near the bottom of the price cycle," after reporting on its January internet auction, in which prices fell 9.3% from December. Lastly, amid all the doom and gloom for New Zealand's dairy industry, some positive news has emerged with the latest RaboBank agribusiness review showing fertiliser prices were down 75% in December. Rising input prices have placed increased strain on the finances of farmers, and with Fonterra lowering its payout forecast recently, this will come as small relief for some in the industry.