Milk powder drops for fifth time as supply beats demand

Whole milk powder prices fell again in Fonterra's online dairy auction, with the weighted average price the lowest since August 2010.

The average price for a basket of products in the auction yesterday increased 1.5 per cent, having fallen in the previous four fortnightly events, with 26,589 tonnes of product sold.

However, the price index for whole and skim milk powder dropped for the fifth consecutive auction - down 2.8 per cent and 0.8 per cent respectively.

The weighted average price for whole milk powder was US$3227 ($3959) - the lowest level since US$2974 on August 3, 2010.

NZX Agrifax dairy analyst Susan Kilsby said she did not think the auction results were particularly positive "because skim milk powder and whole milk powder, which are the big ones for New Zealand, and especially for the payout, they went down".

Fonterra last month dropped its forecast payout to farmers for the 2011/12 season by 15c to $6.75-$6.85, which if production was to rise by 7 per cent could be a drop of about $216 million, with a total payout of about $9.9 billion.

"The prices of the other products which are traded to a much smaller volume, they were certainly all positive but possibly coming up from levels that were lower than what we were seeing sales for outside of [GlobalDairyTrade]," Kilsby said.

There was a general downward pressure on dairy prices driven by higher global milk volumes, she said.

Fonterra last week said milk collections for the season to date were up 10 per cent on the same period last year.

"Demand is still pretty steady and still growing, in the wider scheme it's just at the moment supply has just grown quicker in the past year," Kilsby said.