Authorities have recalled up to 1000 tonnes of dairy products across New Zealand and seven other countries after Fonterra announced tests had found a bacterium that could cause botulism.
Fonterra's unit price and the New Zealand dollar partly recovered yesterday after both were sold down on the back of the latest contamination scare, but economists said the fallout could extend to the farmgate milk price.
The Fonterra unit price immediately slumped to $6.50 at the opening on the NZX- its lowest point since last December - after the weekend's developments, but recovered ground to close at $6.86 - down 26c or 3.65 per cent.
The New Zealand dollar clawed back ground to trade late in the local day at US77.6c, well off its session low of US76.93, but still down from US78.87c in late local trade on Friday.
Peter Cavanaugh, client adviser at Bancorp Treasury Services, said the foreign exchange market's initial response to the news that three batches of whey protein had tested positive for a strain of clostridium, which can cause botulism, was understandable.
"It is pleasing to see that the New Zealand dollar has survived the opening and there has not been any substantial follow-on selling out of Asia," Cavanaugh said.
"There is still a lot of water to go under the bridge, but for now the currency markets have stabilised and the market is implicitly telling us that investors have made the necessary adjustments."
By the close, the focus was turning to the impact on the milk price and the next Global Dairy Trade auction, with results due out tomorrow.
Uncertainty surrounding the global trade meant price makers were largely absent from the NZX dairy futures market, but the October whole milk powder contract traded US$290 lower at US$4300. Traders expect activity to pick up today once more information is known.
Farmers will be concerned about whether the scare will affect the milk price, which has the greatest bearing on farm incomes, and which up until now has been on a roll. This month Fonterra upgraded its payout forecast for 2013/14 by 50c a kg of milk solids to $7.50 per kg - just 10c short of the record high $7.60 per kg for the 2010-11 season.
