19 Sep 2013

Milk prices expected to stagnate

7:30 am on 19 September 2013

The Bank of New Zealand is picking international milk prices to be stagnant in upcoming global auctions.

The Global Dairy Trade Price Index rose 0.3% in the latest twice-monthly auction, after falling 1.1% two weeks ago. Volume fell 12.7% in Fonterra's latest auction.

BNZ economist Doug Steel said the drop was expected at this time of year.

"The volumes vary by the seasonal milk supply so in spring we get a lot of milk as the grass grows but going into summer and into autumn, the milk production falls away," he said.

"This auction has contract periods running right out into March next year so we're starting to get into the period where milk supply will be reducing so volumes on offer are going down."

The number of bidders was also down, suggesting there was more balance between demand and supply.

"So that suggests maybe prices go a bit sideways from here but given that they're still at very high levels, that isn't a bad thing," Mr Steel said.

"We do think the next move in international dairy prices is likely to be downwards more into 2014 as that supply from various parts of the world starts picking up."

But nothing in the prices suggested any impact from Fonterra's botulism contamination scare.

The latest Global Dairy Trade auction was a double milestone for the platform as it notched up its 100th auction and passed $US11 billion in total sales.

Global Dairy Trade started in 2008, and platform director Paul Grave said it had proven successful.

"It provides a real window on the market supply and demand dynamics every two weeks, enabling a very clear indication of what the fair market price for the products we're trading are," Mr Grave said.

"It really is meeting our expectations and we're very pleased with the results we've had."

The platform had six sellers of nine products, with 877 qualified bidders from 19 countries worldwide, and at every event was trading $US100 million to $US250 million.