World dairy prices drop 7.3pc (+graphic)

Photo / Mark Mitchell

Prices of dairy products fell for the first time in 10 online global auctions, led by the whole and skim milk powder as the volume on offer gained for a second session from a two-year low.

The GDT-TWI Price Index fell 7.3 per cent compared to the last sale two weeks ago, the first decline this year. The average winning price fell to US$4,597 a tonne from US$4,968 a tonne in the previous sale, which was the highest on record on the GDT platform that began in July 2008. Whole milk powder, the biggest product by volume, fell 10.2 per cent to US$4,731 a tonne.

Prices have halted their ascent as rains signalled the end of drought in some North Island regions and as economic data showed global growth may be faltering. The official PMI figures for China, out yesterday, showed the manufacturing measure undershot expectations in New Zealand's biggest export market.

Westpac Bank economist Nathan Penny said as the new season's product continued to replace this season's drought-hit offerings prices should drop further.

"From here, we expect world dairy prices to descend further from their peak, but to remain at elevated levels by historical standards. Overall world dairy supply remains relatively tight. Coupled with strong Asian demand, particularly from China, these factors should see dairy prices higher on average over 2013 compared to 2012," said Penny.

Production for the 2013 season was also likely to be down 1 - 2 per cent than earlier estimated.

"While the rain that has come across the country improves prospects for next season's production, it appears to have come too late to reverse falls in production this season. By itself and at this stage of the season, lower production implies a lower payout at the margin."

Penny said he would update the bank's forecast payout in coming weeks.

The total volume of dairy products sold at the latest auction rose to 17,237 tonnes from 15,019 tonnes two weeks ago. Fonterra is forecasting no increase in milk production this year as farmers dry off their herds.

The price of anhydrous milk fat fell 5.2 per cent to US$4,675 a tonne and butter milk powder dropped 3.3 per cent to US$4,500 a tonne. Butter declined 6.7 per cent to US$4,409 a tonne and cheddar rose 3.4 per cent to US$4,800 a tonne.

Lactose and milk protein concentrate weren't offered. Rennet casein fell 3.1 per cent to US$9,745 a tonne and skim milk powder fell 9.5 per cent to US$4,280 a tonne.

There were 87 winning bidders over 10 rounds. There were 135 participating bidders out of a total number of qualified bidders of 802.

See here for more details of the auction.

In March, Fonterra posted a 32 percent gain in first-half profit to $449m and lifted its forecast payout to farmers to $5.80 per kilogram of milk solids from an earlier forecast of $5.50.

At the same time, it flagged plans to slash the number of consumer brands in Australia in the face of intense competition for milk supply and retail sales.

Yesterday it announced plans to cut some 300 staff from its global workforce of 17,000 people.

with NZ Herald