Fonterra reports slide in auction prices

By Guy Montague-Jones

- Last updated on GMT

Related tags: Skim milk powder, Milk, Fonterra

Prices at the Fonterra globalDairyTrade auction have fallen sharply for the second month running, prompting the dairy to warn farmers of a lower than forecast payout.

Following a 13.7 per cent decline at the July event, Fonterra said this month that the gDT-TWI index, which covers anhydrous milk fat, skim milk powder and whole milk powder, was down 8.3 per cent.

These decreases come on the back of a sharp recovery in prices following the milk producer price crisis last summer. Between July last year and April this year prices almost doubled and then began to slide.

Reacting to the latest fall, Paul Grave, globalDairyTrade Manager, said the market was rebalancing amid increasing supply and an uncertain economic outlook.

One of the major reasons for the dip that is not shared in northern hemisphere countries is that New Zealand is moving into the peak production period, putting downward pressure on prices. The strength of the New Zealand dollar has also played its part on the demand side of the equation.

In light of the recent price dips, Fonterra warned that the Board would be reviewing the current payout forecast to farmers for 2010/11.

The New Zealand price situation is likely to affect the European market by increasing competition on international markets and putting pressure on European exports of dry powders.

In this market context, the EU has struggled to offload its stocks of skim milk powder (SMP). At the fourth tender for the intervention sales of butter and SMP a couple of weeks ago, all bids for SMP were once again rejected. Stocks of butter on the other hand have been successfully run down over the course of the tenders.

Related topics: Markets, Fonterra, Pricing Pressures

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