Dairy prices fall 5 per cent in overnight auction

Prices in the latest Global Dairy Trade auction have continued to plummet, with the overall index dropping 5.0 per cent overnight.

This marks the third fall in a row, following a 1.5 per cent rally in June, and the seventh drop out of the last eight auctions.

Whole milk powder (WMP) - which has the biggest influence on Fonterra's farmgate milk price - fell 5.1 per cent, on the back of a 3.3 per cent decline in the previous event, to an average US$3757/MT.

Skim milk powder (SMP) - Fonterra's second-biggest reference product - plunged 8.6 per cent to an average US$3709/MT, continuing its downward trajectory from the last event where it dropped 5.2 per cent.

Just four weeks ago, both milk powder products were commanding well above the US$4000/MT mark.

All other reference products on offer also fell, with butter - which rose 9.1 per cent two weeks ago - down 2.1 per cent to an average US$5530/MT.

Anhydrous milk fat followed suit with a 2.1 per cent down also, to an average US$5580/MT.

Cheddar dropped 2.0 per cent to an average US$4825/MT.

Butter milk powder was not offered at this event, and there were no figures available for sweet whey powder or lactose.

23,219 MT of product was purchased by 109 successful bidders.

For the 2021/22 season, Fonterra's forecast farmgate milk price is $9.10 - $9.50 per kgMS, with a midpoint of $9.30.

On June 23, Fonterra lifted its 2022/23 forecast by 50 cents to between $8.75 - $10.25 per kgMS, from an opening range of $8.25 - $9.75.

The revised 22/23 forecast midpoint, off which farmers are paid, stands at $9.50.

While it wasn't a great result, there was no need to panic, Fonterra head of co-operative affairs, Mike Cronin said.

"When you think about that as a response to what's happening in the global economy, it's probably not overly surprising," Cronin told The Country's Jamie Mackay.

Fonterra tried to "look over that mess" and focus on the fundamentals of dairy instead, he said.

"So our medium-term outlook is still positive on dairy and positive on demand but there will be a few more of these bumps as we go along."

Listen to Jamie Mackay interview Mike Cronin on The Country below:

Those "bumps" included inflation and a possible global recession which were causing uncertainty for farmers, Cronin said.

However, milk was an essential food item and a growing worldwide population kept up demand.

This ensured dairy continued to be "the right business to be in," Cronin said.

"It gives comfort for our farmers when they look over the longer term."