NZ’s retail milk price drop permanent
The agribusiness professor said he is not surprised by the current milk price. In addition, he is expecting milk prices will fall further and stay low for a few years.
Some in the industry call him “Doctor Doom” because he has been talking about this bubble since 2007 and indicating that milk prices will revert to the mean, long-term price average, which is about $4 for 16.8 cl.
Gow said international dairy prices were being driven down as EU and US increase their milk production.
“On top of that we’ve got a double whammy because China has also dropped demand, Russia is out of the market, and now we’ve got a mountain of supply building,” he pointed out.
“We’ve got decreased demand and we’ve got excess supply sitting inside storage at the moment. We’ve got increased production going on, and so you’ve got this double whammy effect which will keep milk prices down for a substantial period of time.
“This is the scenario until a major weather event somewhere in the milk production world takes out a sizeable chunk of milk production or demand for dairy products increase at a higher rate.”
According to agrifood analyst, Keith Woodford, China has about 800,000 tonnes of milk powder, which is five-months’ supply, and there are rumours that the warehouses in NZ are full, as well as those in Europe and other place,s “so there is a milk mountain building out there, or at least there are rumours of it”.
Fonterra is expected to lower its payout of $5.25 for 22.1 cl for the 2015/16 season at its board meeting on August 7.