The price of whole milk powder (WMP) dropped 3.9 per cent, while overall prices fell 4.1 per cent.
Prices for all other products also slipped, except cheddar and lactose, which gained 1.9 and 12 per cent, respectively.
The weak dairy auction result follows a plunge in oil prices this week, with prices of US crude plummeting to negative US$37 (-NZ$61) per barrel on Tuesday.
“This result has seen global sharemarkets and commodity markets weaken, including now dairy markets overnight,” ASB senior rural economist Nathan Penny said.
“The oil price weakness essentially centres on a lack of immediate capacity to store oil, with futures pricing for June still positive.”
That suggests some of the oil price weakness and the weak dairy auction result will prove temporary, he said.
However, there was increasing caution on the global dairy market outlook and risk for milk price forecasts.
“Both WMP and overall dairy auction prices are down around 15 per cent since the Covid-19 outbreak began to impact dairy markets from February.
“Given the season has nearly ended, we expect minor movements in the 2019-20 milk price from here. However, a much wider range of milk price results is possible for the 2020-21 season.”
While the ASB’s forecast remained at $6.50 per kilogram of milk solids, farmers should start contingency planning for the possibility of a sub-$6kg/MS milk price for next season, Penny said.
Westpac head of New Zealand strategy, Imre Speizer, said the dominant theme in global dairy markets remained one of waning demand and rising supply.
“Looking at the regional breakdown for the latest auction, North Asian demand – a proxy for China demand – has rebounded sharply,” he said.
“This is consistent with indications that economic activity in China has started to recover. Middle Eastern demand, on the other hand, continues to be affected by the plunge in oil prices.”
Westpac’s farmgate milk price forecast for the 2020-21 season of $6.30kg/MS assumes global dairy markets would slip further, he said.
Futures markets currently put the 2020-21 milk price at $6.11kg/MS, down from $6.50 two weeks ago.
Fonterra will announce its opening forecast for next season in May.
