6 Jan 2010

Dairy industry untroubled by fall in milk powder price

2:09 pm on 6 January 2010

Dairy insiders have dismissed the first fall in whole milk powder auction prices in six months as a minor market correction.

The average selling price for whole milk powder fell 7.05% to $US3309 per metric tonne at New Zealand dairy cooperative Fonterra's latest monthly online auction.

It follows five consecutive months of price rises.

Fonterra says the price fall is unlikely to affect what it pays to dairy farmers or what consumers pay at supermarkets.

The online auction prices is one of many factors Fonterra takes into account when calculating its forecasts for payouts to dairy farmers.

Fonterra global dairy trade manager Paul Grave told Radio New Zealand's Summer Report the fall is unlikely to significantly influence its payout forecasts.

Mr Grave says its board will review all available information in the new year, including currency exchange rates and global prices for other dairy commodities such as cheese and butter when it next forecasts its payouts for farmers.

Federated Farmers dairy chairman Lachlan Mackenzie believes the price drop should not be taken too seriously.

"A seven percent fall is probably within the margin of normal volatility in today's marketplace. People are consumed with how fragile the world economy still is and we've just gone through a holiday period ... so all those things compound."

ANZ-National Bank chief economist Cameron Bagrie says a 7% decline is no cause for concern but believes the price paid for milk powder will continue to drop from its high in December of $US3560 per metric tonne.

Mr Bagrie predicts prices for whole milk powder to settle at between $US2700 and $US3000 per metric tonne, which he says will still prove very profitable for farmers.

Prices for another product, anhydrous milk fat, rose 4.39% to $US4539 a metric tonne. This product has only been trading online since November last year.