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Fonterra's latest online auction has seen the value of whole milk powder slashed by more than half since July, although the dairy giant says the price dive is bottoming out.
At this week's auction, the average price of whole milk powder dropped 9.3 per cent from December's auction
to US$2017 a tonne - a drop of 54 per cent since July.
The managing director of Fonterra GlobalTrade, Kelvin Wickham, said the result reflected trading conditions.
"Dairy prices have fallen as a result of a cyclical lag between supply and demand responses, though this has been accelerated by the demand downturn resulting from the global financial crisis and recession. Still, the spot price increase is encouraging and we hope this is a sign of things to come."
The spot price was represented by contracts for delivery three months from the auction and was up 1.3 per cent on December.
"Our own supply and demand analysis indicates that we are near the bottom of the price cycle," Wickham said. "It will bounce around, it's likely to be kind of flat in a much narrower range and then if it's going to pick up it won't be until the second half of 2009."
Supply was starting to contract and while global inventories needed to be worked through, the current price levels were an excellent buying opportunity, he said. "What we're still looking for is to see more demand pick up."
Dairy prices are not the only commodity losing value.
The ANZ Commodity Price Index covering a basket of export products fell for a fifth successive month, down 7.4 per cent in December and 27 per cent from a peak in July last year.
Every commodity price except apples was down in December - the broadest monthly drop since the series started in 1986.
Dairy and wool prices fell more than 12 per cent, aluminium was down 20 per cent to a five-year low, log prices fell 4.4 per cent, seafood and lamb slipped 2.4 per cent and both venison and beef dropped 1.4 per cent.
The index for dairy products rose for 15 consecutive months to peak at 291.9 in November 2007 - more than double what it had been in August 2006.
ANZ economist Steve Edwards said it was uncharted territory.
"I think we can say we're pretty certain that dairy prices have eased a bit ... and that's over a third of the index so unless things turn around quite rapidly we'd expect to see another decline next month," Edwards said.
"We wouldn't expect to see the magnitude we've seen in the last two or three months but certainly the trend is your friend and, well, the trend isn't our friend at the moment."
UBS senior economist Robin Clements said there were signs that some commodity markets were bouncing, including some metals and oil.
"The year finished with a bit of a relief rally and it's begun the year with a bit of a rally in some commodities as well," Clements said.
"But is that the end of the bad news or is there another round of bad news for the global economy and therefore more downside for commodities to come? Hard to say."