Global dairy trade auction prices have lifted slightly from their five-year low but the blowtorch remains on Fonterra's forecast milk solids payout, with downward payout revisions from analysts.
While the dairy trade average winning price rose 1.4% to $US2640 ($NZ3312), up from $US2599 two weeks ago, auction volumes sold were down 8% to 50,816 tonnes.
However, analysts are highlighting that to achieve Fonterra's forecast $5.30 payout for each kilogram of milk solids, prices have to reduce a further 30% by the end of the season next May.
Dark clouds still overshadow a recovery for the global prices, with demand from China still down, weak European growth, Russia's import ban and expansive conversion of US farms to dairying, Craigs Investment Partners broker Peter McIntyre said.
''It's good that the price has stabilised to some extent, but it's far too early to call a trend ... we'll need three or four consecutive increases for that,'' he said.
The initial response of the New Zealand dollar to the price rise saw it spike US1c, from US78.5c to US79.5c, and the momentum continued in later trading; at 5pm yesterday it was US79.7c.
A fortnight ago, the dairy price hit lows last seen in 2009. It has plunged close to 50% since February and, at Fonterra's estimated $5.30 per kilogram of milk solids payout, $5 billion to $6 billion could be stripped from the economy.
Mr McIntyre said a correlation had developed between global oil and milk prices; oil was a strong economic growth indicator but it was trading at four-year lows, just above $US80 per barrel.
''There could still be more downward pressure to come on [milk] prices,'' he said. Federated Farmers Dairy chairman Andrew Hoggard said the auction ''may be a case of eighth trading event lucky'' but the small gain would not prompt farmers to break open the ''silver top'' just yet.
''Things remain volatile and it would not surprise me if we see trading events oscillate around until the end of this year,'' Mr Hoggard said.
Another factor in global trade was the sector ''working through huge quantities of European milk'', displaced due to the Eastern Ukraine crisis. While an auction lift was good, it did not make a trend, Mr Hoggard said.
Westpac economist Michael Gordon said the 1.4% overall rise provided ''a small trace of relief for New Zealand dairy farmers''.
''That doesn't sound like much on its own terms, and we should bear in mind that it follows a 7.3% fall in prices in the previous auction, which was one of the worst results so far this year,'' he said.
He did note that even the small rise represented a ''notable bucking of the trend'', given the backdrop of growing risks to the global economy, a continued slide in some major commodity prices and the ''wild moves'' in financial markets overnight.
While prices rose by 3.1% for whole milk powder, New Zealand's major export product, and were up 7.3% for anhydrous milk fat, there was, in contrast, a further 3.6% fall in skim milk powder prices, he said.
''The skim milk powder is more commonly exported by those Western countries that have been the direct targets of Russia's temporary ban on food imports,'' Mr Gordon said.
ASB chief economist Nick Tuffley said while it was a ''relief'' to see the 1.4% rise, that gain and the forward prices for the powder stream were not high enough to avoid ASB trimming its milk price forecast for the current season.
It went from matching Fonterra's $5.30 down to $5.10, albeit driven by the previous fortnight's 7.2% decline.
''In order to achieve the $5.10 milk price forecast, we still need to see prices rise over the remainder of the season,'' he said. Powder prices are around $US2500 per tonne and need to rise ''significantly'' above $US3000 to achieve a $5-plus milk price.
''This not happening is clearly a risk,'' Mr Tuffley said.
BNZ head of research Stephen Toplis said while the auction price achieved a ''small bounce'', it ''remains fundamentally weak''.
The BNZ lowered its forecast yesterday, Mr Toplis noting dairy revenue was expected to be lower by about $5.5 billion during the next 12-18 months ''Prices have inched off the bottom following a very aggressive sell-off on offer and partly supported by reduced volumes. The latter is hardly a positive sign,'' Mr Toplis said. Prices are down 46% on a year ago.
''That's very important for the dairy industry and for the New Zealand economy as a whole, given the sector accounts for around a quarter of the nation's total exports,'' he said.
The AgriHQ Snapshot Farmgate Milk Price indicates that if yesterday's dairy trade prices were achieved across the entire season, the milk price would be just $3.90, AgriHQ dairy analyst Susan Kilsby said in a note. Based on the auction results, she calculated the payout would be only $4.75 per kg.
''The improvement in prices at last night's auction result is a good start but we need to see a continuation of this upward trend in order for farm-gate milk prices to improve,'' she told BusinessDesk.
''Despite a higher whole milk powder price, the AgriHQ Seasonal Farmgate Milk Price has fallen further as the recovery in dairy commodity prices is now expected to be slower,'' she said.
