7 Jul 2010

Milk powder prices fall again

3:29 pm on 7 July 2010

Fonterra says a sudden fall in milk powder prices in its global online auction is partly due to more product being available worldwide.

The average selling price for all products at Fonterra's latest online auction overnight on Tuesday fell 13.7% to $US3344 a tonne.

Whole milk powder prices declined 14.8% to $US3100 a tonne in July.

Overall, average prices have fallen 15% in the past three months. There were declines of 1.2% in May, and 3.5% per cent in June.

Fonterra global dairy trade manager Paul Grave told Morning Report prices are now being driven by demand, not supply shortages.

"There are new concerns about how robust the global economy is and we hear stories about double-dip recessions. That really does affect how much buyers are prepared to purchase."

Mr Grave says it is not possible yet to say if the forecast payout to farmers will be affected by the auction results.

In May, Fonterra forecast a payout of $6.90 to $7.10 per kilo of milk solids for the 2010-11 season, but said it could top $8 if prices remained strong.

Federated Farmers' dairy chair, Lachlan McKenzie, says he is confident May's forecast payout will hold, despite the price fall.

BNZ senior economist Craig Ebert says volatility in prices reduces the chances that Fonterra will increase its payout, though a number of other factors will have a bearing.

Meanwhile, Fonterra is increasing the frequency of its global online auctions to twice a month from September.