Milk prices fall in web auction

Average milkpowder prices have fallen more than 4 per cent in Fonterra's monthly internet auction, with one rural economist characterising it as a symptom of the highly volatile market.

Average prices at the auction had risen for two months in a row, after a lengthy period of decline.

Last month the average selling price for whole milkpowder rose 3.5 per cent to US$2235 ($3690) a tonne, following a 16.6 per cent rise in early March.

But yesterday the average price paid across all products and contract periods was US$2144 a tonne, 4.1 per cent lower than in April.

National Bank economist Kevin Wilson said he was not reading much into the fall.

"If it was down 4 per cent for three months then we'd have a rethink. We have been saying for some time the new world has increased volatility with bigger changes over shorter time periods.

"The payout is taken from an annual average. One month, while important, is not going to change it much," said Wilson.

A Rabobank confidence survey last week found the over-riding message coming from dairy farmers was one of anticipated volatility.

Fonterra's auctions sell milkpowder on a range of contracts, including a one-month contract with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

Fonterra director of portfolio optimisation for global trade operations, Nigel Kuzemko, said prices ranged from US$2085 to US$2220 a tonne, with prices for contracts with short-term delivery rising.

Milk powder for July delivery rose to an average of US$2168 a tonne, 1.6 per cent up on the June price set last month. It was the fourth rise for that segment of the auction in the 10 months since the auctions began, although prices have fallen 50 per cent since the first sales.

But the contracts for delivery between August and October dropped 6.9 per cent to US$2162 a tonne, and those for export between November and January sold at US$2113 a tonne, down 6.3 per cent.

The mixed prices showed the market remained cautious as the global recession continued to weigh on consumer demand, Fonterra said.

"Today's result confirms our expectation that dairy markets will be characterised by increased uncertainty in the future and we expect prices will continue to cycle around current levels," said Kuzemko.

He said the internet auction attracted strong international interest and a record number of participants.

Fonterra's next internet auction will be held on June 2.

The world price index for dairy products rose for 15 consecutive months to peak in November 2007 and then plummeted 58.4 per cent until February this year.

- NZPA