Milk powder price drops to year low

Mild autumn weather boosted production this year. File photo / Sarah Ivey

Whole-milk powder prices have declined to their lowest in more than a year amid escalating concerns that global economic growth may falter and reduce demand.

Powder for October delivery fell to US$3359 per tonne, the lowest level since August 3 last year, from US$3477 two weeks earlier, according to Fonterra's latest global dairy auction.

The near-term contract fell 2.9 per cent, according to a trade-weighted price index from the company.

Lower dairy prices may help cap global food costs that rose in June for the 10th time in the past year, staying near a record reached in February.

Whole-milk powder has slumped 32 per cent since reaching a record US$4958 in March as high prices spurred farmers in the US and New Zealand to boost output.

There's "more realisation that global growth, or at least growth in the Western world, is a lot slower than what some were hoping for, and that will likely feed through into lower demand for commodities and for dairy products," said Doug Steel, markets economist at Bank of New Zealand in Wellington.

"There was the potential for buyers to be less willing to step up given what's been going on in financial markets."

Fonterra said in May that production in New Zealand was 4 per cent ahead of a year earlier and output may reach a record after mild autumn weather boosted pasture growth.

New Zealand's milk output might surge 5.7 per cent in 2011-12, the Ministry of Agriculture and Forestry said on June 14.

Chinese demand for New Zealand milk products last year surged more than fivefold from 2008 to about 353 million kilograms, according to Fonterra.

"Certainly indicators are a lot stronger than those in the West and we know that's where a lot of the demand for dairy products has been coming from," said Steel. "The auction results suggest that demand hasn't tapered too much."

Fonterra, which accounts for about 40 per cent of the global trade in dairy products, sells whole and skim-milk powder, dried-milk fat and casein at its GlobalDairyTrade auctions.

The company offers one-month contracts with delivery from two months after the sale, and two three-month contracts with delivery three and six months later. Casein is a protein found in milk.

Whole-milk powder for delivery from November to January fell 2.6 per cent, Fonterra said. Powder for shipment from February to April was unchanged. Across all contracts, prices declined 2.2 per cent.

In other auctions, near-term cheddar rose 5.8 per cent, while butter-milk powder and milk-protein concentrate also increased.

Milk fat, skim-milk powder and casein prices fell.

- Bloomberg