Global prices at unsustainable levels

International dairy prices are currently at unsustainable levels. Global dairy prices are currently more than 50% lower than in December 2013. At the December 2nd Fonterra internet sale prices decreased by 1,1% from the previous sale at the end of November. The “global dairytrade” price index moved to 739, compared to 1483 a year ago.  The main reasons for lower prices are well-known, higher production during 2014, especially in New Zealand and the lingering effect of the Russian ban on imports from a number of countries. Lower product prices have already resulted in lower producer prices in many countries. Fonterra lowered their estimated pay-out for 2014/2015 by 34% and European producer prices for September 2014 are already 8% lower than at the same time last year. In New Zealand farmers are expected to cut back on concentrate feeding that was increased in 2013/14 when their producer prices peaked at R5,40 and more per litre. The full effect of the lower product prices are not yet accounted for in producer prices. However any further decrease in producer prices may result in lower production.  Industry experts expect product prices to increase in future. The timing of this increase is however still uncertain.