A FALL in dairy prices at the GlobalDairyTrade auction which followed four consecutive gains was no surprise, and more rises are on the cards, an economist says.
Prices at the overnight auction dropped 3.1 per cent, hitting an average price of US$2735 per metric tonne (FAS).
The price of whole milk powder, New Zealand's major export, tumbled 4.6 per cent, to an average price of US$2694.
There were 163 bidders trading 34,519 metric tonnes of dairy product.
Federated Farmers dairy spokesman Andrew Hoggard said it would have been good to see another 10 per cent rise but "the odd hiccup on the way up" had to be expected.
"I saw a lot of predictions out there it would be a flat event based on the futures market. But everyone's picking more upward momentum," Hoggard said.
He would not be drawn on whether farmers could expect to see the Fonterra farmgate forecast payout of $5.50 per kilogram of milk solids.
ASB economist Nathan Penny said the fact that prices took a pause was expected.
"When we look back over the past four auctions and the move that occurred of 81.7 per cent in whole milk powder, then it's not surprising that markets took a breather," Penny said.
There was no new event that had caused the price drop.
"The outlook still remains for prices to move higher because production is weak and falling."
Positive news was a slight recovery in the Chinese housing market and a move towards a consumption economy.
"There's a combination of a structural slowdown and a cyclical slowdown. The cyclical side is bottoming, and they are moving towards a different kind of growth which will be good for food and tourism," Penny said.
The kiwi sat just above US68 cents before the auction, even strengthening before midnight, but dropped sharply following the auction.
It was trading at US67.47c later on Wednesday morning.
ANZ senior foreign exchange strategist Sam Tuck said the Kiwi was the weakest performer against major currencies overnight.
"One of the things we noticed last night was whole milk powder was down 4.6 per cent and under the US$3000 a tonne that Fonterra has indicated is necessary to get back to in order to make its $4.60 target," Tuck said.
"That tells us for the dairy side of things, all the price increases are still not about getting a positive impact on the New Zealand economy. They're all about mitigating the negative impact."
AgriHQ dairy analyst Susan Kilsby said two weeks ago the whole milk powder price was expected to reach US$3000 a tonne by the end of the year but that price was now likely in May.
Fonterra's milk collection for September was 9 per cent below levels of a year ago.
"The news of the sharp fall in milk supply should have supported a lift in GDT prices, however that was not the case," Kilsby said.
While prices for main products fell, there were some gains.
Skim milk powder fell 4.5 per cent, the butter price index was down 11.1 per cent, the cheddar price index was minus 2.2 per cent and lactose fell 3.8 per cent.
Anhydrous milk fat was up 2.4 per cent, rennet casein up 2.1 per cent and butter milk powder lifted by 3.2 per cent.
Milk supply has been reined in this year because of a high cow cull. Beef+Lamb NZ forecasts that the dairy cow herd will be down by about 2 per cent in 2015-16 compared with 2014-15, due to low milk prices.
