Key Points:

The dramatic tumble in international dairy prices is continuing in the face of global recession but the foundations for longer-term success remain.

The ANZ Commodity Price Index for dairy products was down 12.2 per cent in November and 42.7 per cent from a peak a year earlier.

Beef, wool, lumber and aluminium all recorded double digit drops in the month and seafood slipped 0.6 per cent. Lamb and kiwifruit rose 4.3 per cent and 0.3 per cent respectively.

Wholesale UK lamb prices hit a 30-month high in November but the peak might be shortlived with the latest weekly prices having weakened, ANZ said.

ANZ economist Steve Edwards said the drops were a continuation of the previous month, with a turnaround dependent on the depth and length of the downturn.

"Once that starts to pick up again then demand from offshore nations will rise and bolster the prices that we're receiving," Edwards said.

"But we have been insulated to a certain degree by the falling currency so that has helped offset some of the fall in prices."

The world price index fell 7.2 per cent in November, while the New Zealand dollar price index was down 1.8 per cent.

Dairy giant Fonterra's latest online auction yesterday returned an average price for whole milk powder of US$2223 ($4203.50) a tonne - down 14 per cent on last month's auction and 49 per cent since July.

Fonterra commercial director of GlobalTrade Guy Roper said the economic crisis had resulted in a significant drop in the demand for dairy commodities and a continued decline in prices had been expected.

"There will continue to be downward pressure on prices, until either the supply of product declines, or buyers have confidence that the global economic situation will improve," Roper said.

Westpac economist Doug Steel was not surprised by the auction price drop. "I was thinking 14 to 15 per cent and even up to 20 for the month, certainly the other indicators that we look at suggest that prices were going to fall quite a lot," Steel said.

Milk powder prices had averaged about US$2000 a tonne before the dairy boom and peaked at US$5000.

Westpac had originally thought prices might fall back to US$3000 a tonne but this had been before world growth was downgraded so quickly and so far, Steel said.

The bank revised briefly down to US$2500 a tonne but was now down to more like US$1700 or US$1800, he said.

"I think there could be an undershoot especially with so much momentum downwards and demand looking pretty sick for 2009.

"At the same time when you've got the supply coming on chasing those previous high prices it's a pretty nasty cocktail to be looking at."

However, Westpac was picking a mild recovery in the second half of 2009 and the medium-term picture for the dairy sector was still rosy with prices 25 per cent above previous trends, Steel said.

"But that's really a 2010/11 story now, we think, when the world gets the worst of the economic fallout from the credit crunch out of the way.

"I think ... population growth and income growth in the emerging markets, westernisation of diets and the urbanisation in China, and all these things that we've talked about for a long time, they don't go away overnight."

Speaking at last week's annual meeting Fonterra chief executive Andrew Ferrier said there was good solid long-term consumer demand for dairy. "We see prices coming down, we see them staying low for a period of time mostly driven by the global recession and we will see them recover. What I can't tell you is exactly when that's going to happen."

"Will that happen in our fiscal [year to] 2010? Well I would like to think so, it's possible it may be into 2011."

PRICE DROP

* ANZ Commodity Price Index fell 7.2 per cent in November.
* The fourth successive monthly drop took the total fall since July to 21 per cent.
* Dairy, beef, wool, lumber and aluminium all had double digit monthly drops.
* A weaker currency cushioned the fall with the New Zealand dollar price index down 1.8 per cent.