Extent of dairy price drop 'surprises' industry

The size of the latest drop in international dairy prices has taken dairy farmers and commentators by surprise.

The key commodity influencing the farm gate milk price, whole milk powder, fell significantly in the overnight global dairy trade auction, by 10.8 percent to $US2054 a tonne.

Skim milk powder dropped by 5.8 percent to $US1875 a tonne, and cheddar and butter prices also fell.

The overall price index now sits at 2276, the lowest it has been in six years.

Federated Farmers dairy chair Andrew Hoggard said farmers had been hoping prices were starting to bottom out.

He said with the continuing slide in prices, he was not expecting to see an improvement in Fonterra's final milk price for the past season, which currently stands at $4.40 a kilo of milk solids.

An analyst with AgriHQ, Susan Kilsby, said while a drop in whole milk powder prices overnight was expected, she agreed that the extent of the fall was a surprise.

"A lot of the buyers have bought forward and there's not a lot of demand, and there's more supply coming on to the auction," she said.

"So there was over 15,000 tonnes of whole milk powder available on the auction. The previous auction, there was only 10,000 tonnes - and by August, those volumes will be closer to 30,000 tonnes."

Ms Kilsby said it was very unlikely prices would move up any time soon.

"There's certainly nothing to indicate that that will be the case. I think the best case scenario will be that prices stabilise."

Joyce says NZ must avoid 'negative funk'

Minister of Economic Development Steven Joyce said it was important New Zealand did not talk itself into a negative funk over a fall in dairy prices.

The Labour Party said the collapse in dairy prices had stripped $13 billion out of the economy.

It said the Government had failed to diversify the economy, and riding the wave of commodity prices was never going to be sustainable.

But Mr Joyce said the drop was not a surprise given recent international events, such as the debt crisis in Greece.

He said he suspected the economy would go through a bumpy phase but it should be remembered other industries in New Zealand were doing very well.