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Global Dairy Prices Fall to 13-Year Low

International dairy prices fell to a 13-year low in the GlobalDairyTrade auction, a trading platform established by New Zealand’s Fonterra Co-Operative Group.

The GDT Price Index fell 9.3% overnight Tuesday from the previous auction on July 15, with the average selling price at US$1,815 a metric ton, the lowest since 2002. The index covers a variety of products and contract periods and is viewed by the dairy industry as a market reference price. The average selling price for whole-milk powder was US$1,590 a metric ton, down 10% from the prior auction. The dairy industry is the backbone of New Zealand’s economy, accounting for more than a quarter of exports. But global dairy prices are down 64% since early 2014, and many of the country’s farmers are operating below the break-even level.

The Reserve Bank of New Zealand, the country’s central bank, has flagged the dairy sector as a major risk to financial stability. Dairy prices have suffered because of world-wide overproduction, subdued demand from important markets such as China, and a glut sparked by Russia’s ban on U.S. and European food imports. As a result of the soft auction, economists are reviewing what they expect Fonterra to pay its shareholders for their milk solids in the current season.

Fonterra is forecasting a payout of 5.25 New Zealand dollars (US$3.43) per kilo of milk solid but is widely expected to lower that forecast at its board meeting Friday. ANZ Bank expects Fonterra to pay NZ$3.50 per kilo of milk solids. Products on offer at the GlobalDairyTrade auction include whole-milk powder, skim-milk powder, butter, cheese and anhydrous milk fat.