4 Jul 2012

Dairy prices fall 6% in latest auction

1:57 pm on 4 July 2012

International milk prices have fallen sharply at the latest global auction despite higher feed costs in the US putting pressure on supplies.

Fonterra's Global Dairy Trade-Weighted Price Index on Wednesday fell almost 6% to an average selling price of $US2,787 a metric tonne.

The index has fallen more than 30% since hitting a near four-year peak in March last year as global commodity prices have retreated.

BNZ economist Doug Steel says the figures are a reflection of the uncertainty surrounding the European debt situation and an increase in dairy supply.

He says higher prices for wheat and corn feed crops in the US might put pressure on that country's dairy suppliers, meaning an eventual supply reduction and possible higher dairy prices.

In Wednesday's auction, anhydrous milkfat prices dropped the most, by more than 10% on average.

Skim milk powder prices fell by almost 10% and whole milk powder by about 4%.

Export figures show New Zealand shipped 3% percent more whole milk powder, 5% percent more skim milk powder and 21% more anhydrous milkfat in the 2011/12 dairy season than it did the previous year.

The figures confirm that much of the record additional milk that was produced in the past season was manufactured into dairy commodities and exported.

However it also indicates the volume of dairy product currently in stock in New Zealand is higher than it was a year ago.

Skim milk powder supplied by Dairy America and Arla sold at a premium to Fonterra product for the first time since the northern hemisphere companies joined the global dairy trade system.

Commodity index down

On Tuesday, the ANZ's monthly commodity price index decreased 2.4%, to its lowest level since March 2010.

Dairy product categories, which underpin the index with an overall 43% weighting, dropped 4% during the month.

Among the 10 commodities which fell, aluminium prices dropped 6%, wool fell 5% and kiwifruit eased 3%.

In contrast, logs, apples and skim milk powder lifted 2% and lumber 1%.

ANZ economist Steve Edwards says it's difficult to tell how long commodity prices will continue to fall.

He says a decrease in demand for commodities internationally has followed debt problems in Europe.

A weakening in overseas currencies and corresponding strengthening in the New Zealand dollar has compounded the drop in prices.