The latest Global Dairy Trade auction overnight does not make for good viewing for Kiwi Dairy farmers with Cheddar the only product with a positive result.
Anhydrous Milk Fat (AHF) was down 5.3%, Butter was down 3%, Mutter Milk Powder (BMF) did not have an available index price, Cheddar (Ched) was up 5.8%, Lactose (LAC) was not offered, Skim Milk Powder (SMP) was down 5.2%, and Whole Milk Powder (WMP) was down a whopping 10.9%.
Dairy Analyst Stu Davison told REX host Dominic George his calculations following this result put milk prices at just $6 a handle (per kgMS), 25 cents below Fonterra's recent revised Farmgate Milk Price for the 2023/24 season.
"It's pretty ugly," he said.
"Fonterra loaded a lot more whole milk powder off of volume onto the GDP platform on Friday last week which led us to these results we've got today."
He explained that as a result, there are also more volumes for both of September's auctions, which Davison isn't confident will all be required, likely leading to more negative consequences.
"We've got massive volumes for our buyers to try and get through and from my perspective they are unlikely to turn up and consume those volumes in any great demand which will likely lead to another bit of price depreciation.
"Long story short there is a fair bit of pressure on that milk price going forward and I feel sorry for the guys behind the farm gate at the moment, it's not going to be pretty."
With milk production in the US, Europe and China all up, Davison said it's no massive surprise there is a surplus of milk supply at the moment. He is optimistic however that it will even out, telling George the US and Europe's production levels are easing, as are New Zealand's.
"The real kicker here is that China, the fourth biggest milk production country in the world is also growing their production at the same time.
"At the same time, their consumers aren't willing to consume as much due to fear of the economy in their own country.
"It's a great little storm in a teacup that's going to affect our economy pretty nastily."
Despite the recent downturns, Davison said there is light at the end of the tunnel, it's just a matter of figuring out how far away that light is.
"Dairy market does this thing where it lags quite significantly as a result of the cows.
"You calve a cow, it's got to be milked, you produce as much milk as you think is going to be needed. The price response is always slow to hit the farm gate.
"We're seeing that slow response happen, it just takes a bit of time for the market to react to that change."
He expects the remainder of this season is likely to continue to be tough for Dairy farmers but is hopeful next season will yield more positive results.
Listen to the full chat between Dairy Analyst Stu Davison and Dominic George above.