16 Mar 2011

Golden run over for Fonterra at dairy auction

6:15 pm on 16 March 2011

Dairy prices have fallen in Fonterra's latest global auction, for the first time in 12 weeks.

Prices for all products fell 8.2% at the auction overnight on Tuesday.

The result ends a golden run for dairy prices, which rose in the last fortnightly auction to highs of 25% more than in November last year.

Whole milk powder prices fell an average of $US97 to $US4443 a ton.

That is a drop of 12.9% compared with the previous auction two weeks ago, where prices for whole milk powder rose more than 7%.

Bank of New Zealand senior economist Craig Ebert says prices were long overdue for a correction after weeks of increases, but a drop closer to 5% had been expected.

Mr Ebert says the correction is still within the range of what is considered healthy movement.

He says it may have been prompted by the fact that the auction happened at a time of great global distress.

However, Craig Ebert says the dairy industry may be starting to see the beginning of a peak in dairy prices.

He says farmers should still be in line for their forecast final milk payment of more than $7 per kilo of milk solids.

Fonterra global dairy trade manager Paul Grave says prices have been rising steadily since August last year, with only a 0.1% drop in October.

He says the market is just correcting itself to balance supply and demand.