New Zealand dairy prices continue to fall amid weak dairy market

New Zealand dairy farmers were less likely to see a rise in their anticipated payout this season after another fall in dairy prices, the third fall in a row, added to their financial woes.

The average price on the fortnightly Fonterra-run GlobalDairyTrade auction over Wednesday night fell by 3.6 percent to 2,620 U.S. dollars a ton, or 51 percent down from the peak dairy price in February 2014.

"It makes the prospects for the advance rate for next season weaker as well. We really do need to see some signs of a recovery and so far we are not seeing them," Federated Farmers dairy chair Andrew Hoggard said in a statement.

The reasons for a weak dairy market had been the same for some months.

"The Chinese market is weak, European exports to Russia have been dislocated, dairy regions around the world have enjoyed good weather and the northern hemisphere is awash with cheap feed grain, " said Hoggard.

"For most of these things there is not much we as a nation or industry can do. That includes the European trade dispute with Russia, which escalated out of the Ukraine conflict," he said.

"Anything which can be done at the international political level to restore access into what is the second largest dairy market in the world must be welcome."

Senior dairy analyst Susan Kilsby said on the AgriHQ consultancy firm's website that dairy markets remained weak around the world.

"Growth in global milk supply is beginning to slow as farmers respond to lower milk prices, but it will still take some time before markets are back in equilibrium," she said.

The main opposition Labor Party said the falling dairy prices were creating "an economic black hole" of almost 7 billion NZ dollars (5.32 billion U.S. dollars) that would affect regions reliant on dairy and crucial industries.

"The economic black hole from the fall in milk prices is getting bigger and bigger. Since the February 2014 peak, prices have fallen 51 percent. That will see a large fall in the Fonterra milk payout to farmers," Labor finance spokesperson Grant Robertson said in a statement.

"If the price keeps falling or even stays where it is, Fonterra 's payout will be significantly lower than forecast and the economic black hole even bigger."

Fonterra has forecast a payout to farmers of 4.70 NZ dollars (3. 57 U.S. dollars) per kg of milk solids this season, but many farmers say they need a payout of at least 6 NZ dollars (4.56 U.S. dollars) per kg to remain viable.

Analysts have argued that Russia's trade war with Europe is sending European dairy products on to the global market and driving down prices.

The government's Statistics New Zealand agency said last month that export values of milk powder, butter and cheese, New Zealand' s largest export commodity group, fell by 41 percent year on year in February to 913 million NZ dollars (681.39 million U.S. dollars) , while the quantity was down 10 percent.

More than three quarters of the drop in value was due to falling exports to China, it said.