Fonterra announced that it would reduce its 2015-2016 milk price forecast from $5.25 per kilogram of milk solids down to $3.85 (kgMS) in an August 7 announcement by the cooperative that markets over 90 percent of the island nation's milk. That represents a 27 percent reduction in the price forecast in just over 60 days.
As the world's leading dairy exporter, marketing roughly one-third of all globally traded dairy products, could this gloomy price forecast be a harbinger of future U.S. milk prices?
"Global imports were down 2.2 billion pounds during the first five months of the year," calculated Nate Donnay, the director of dairy services at Informa Economics, Eagan, Minn. "Combine the production growth and the import reduction and you can say reasonably there was a 5.1 billion-pound surplus of milk globally during the first five months of the year.
"That puts us (the dairy industry) on track for a global surplus of 6 to 9 billion pounds for the year. We estimate that the surpluss in 2009 was only 5.6 billion pounds," said Donnay referencing the last major downturn in milk prices.
"The conclusion that we've come to is that the global surplus is likely to persist at least through the end of the year and likely into early 2016 unless adverse weather reduces milk production in two or more of the major exporters," said the economist.
As for New Zealand, dairy product prices on the Global Dairy Trade have fallen steadily since March and are now at the lowest level since the founding of the trading platform.
Stateside, USDA reduced its 2016 All-Milk price forecast to a $17.50 midpoint. That prediction was down 45 cents over the past 60 days. The main reason it hasn't been lowered further has been that strong domestic demand has propped up milk prices.
