Global dairy prices tumble again as large import regions pull back

The Global Dairy Trade price index was down 2.8 per cent at the auction on Tuesday, March 19.

This followed a 2.3 per cent fall at the March 5 auction, following a long rally.

Results were down mostly across the board - with skim milk powder (down 4.8pc), lactose (down 4.4pc) and whole milk powder (down 4.2pc) leading the way.

Only anhydrous milk fat bucked the trend, recording a 2.5pc lift.

Westpac NZ chief economist NZ Kelly Eckhold said whole milk powder was now 8.6pc down on its February peak.

"Interestingly, support from the three main regions that usually pick up the bulk of product in the auctions was weaker this time," he said.

"Chinese buyers pulled back further as did Middle Eastern buyers a touch."

But Chinese demand remained around the 10-year average.

Mr Eckhold said overall prices remained about long-term averages, but on-farm costs had increased significantly.

However, Westpac is forecasting farm cost inflation to normalise.

"Last year, we had anticipated a significant reduction in on-farm costs after a couple of years of very strong cost increases," Mr Eckhold said.

"In fact, cost increases on-farm normalised in 2023 and came in close to our forecasts at an average of 2.4pc over 2023."

Debt servicing costs were expected to remain high for 2024 but interest rates looked to have peaked.

"Wages costs are expected to moderate from the very high levels seen in recent years as the labour market continues to ease," Mr Eckhold said.

"The outlook for on-farm costs is relatively flat from here."