The price of Fonterra Shareholders' Fund units fell to their lowest point since listing after the latest GlobalDairyTrade auction registered another fall in product prices.
The units - which mirror the value of farmer-only Fonterra shares - traded at a low of $5.04 - down 16c from Wednesday's finish, before recovering ground to close at $5.10.
Fonterra units - which give outside investors access to the dairy giant's dividend payments without conferring share ownership - debuted on the NZX in November 2012 at $6.66 - a $1.66 premium to their $5.50 offer price. They went on to record a high of $8.09 in May 2013.
ANZ rural economist Con Williams said the weakness in the units probably reflected farmers selling their Fonterra shares.
Under Fonterra's rules, farmers need to buy shares when they want to increase production. GDT prices continue to decline and with the outlook for 2015/16 becoming dimmer, farmers will instead be looking to reduce production and require fewer shares.
"Farmers are getting rid of cows and are probably looking for cash flow and selling their shares," Williams said. "There has been a lot of talk about farmers selling their shares, so that to me would be the most likely cause of it."
Salt Funds Management managing director Matthew Goodson said the units could be reflecting tough conditions in Australia, where Fonterra has been losing money as it competes with Murray Goulburn and the Australian co-operative's A$6/kg farmgate milk price.
See recent movements in the GDT auctions here:
The units weakened in the days following the release of Fonterra's first-half result on March 25, when Fonterra announced a 16 per cent drop in its first-half net profit to $183 million and lowered its dividend forecast to a range of 20-30c a share from 25c-35c.
As expected, product prices softened but the rate of decline showed signs of abating, with the GDT price index falling by 3.6 per cent, driven mostly by weakness in skim milk powder, compared with a 10.8 per cent decline at the last sale.
Among the major products, wholemilk powder prices dropped by 4.3 per cent to US$2446 a tonne and skim milk powder dropped by 7.8 per cent to US$2253 a tonne. Wholemilk prices - which are central to Fonterra's farmgate milk price forecasts - remain higher than the $2270 a tonne achieved at the last sale for 2014 but are 38.7 per cent down from this time last year.
Economists say the next few auctions are shaping up as being critical in determining where the opening milk price and advance will be pitched for 2015/16. As it stands, there is downward pressure on Fonterra's $4.70 per kg of milksolids forecast for the current season, which ends on May 31.
They say oversupply issues continue to weigh heavily on the market.
• 3.6% fall in GDT price index.
• 4.3% fall in wholemilk powder price.
•7.8% fall in skim milk powder price.