2 Apr 2014

Slump in milk auction prices

6:43 pm on 2 April 2014

International milk prices have slumped at Fonterra's fortnightly auction.

A milk tanker collecting milk from a dairy farm in North Taranaki.

A milk tanker collecting milk from a dairy farm in North Taranaki. Photo: PHOTO NZ (file)

The Global Dairy Trade index fell 8.9 percent with an average selling price of $US4124 a tonne. It was their biggest drop in more than a year and the fourth consecutive fall at the auction.

Prices have fallen 18 percent since hitting a record high of more than $US5000 in early February. They are also 17 percent below what they were in the same period a year ago, though last year's auction was affected by low volumes because of drought.

Analysts say the declines shouldn't be a surprise, with ANZ Bank saying high prices have attracted more supply from the United States and Australia.

The falls also reflect seasonably high volumes of wholemilk powder from New Zealand, as well as a slowdown in Chinese demand, though ANZ say both those factors should have only a temporary effect on prices.

Federated Farmers dairy vice-chair Andrew Hoggard said farmers saw the drop coming.

"To most farmers it's been pretty widely forecast that things will ease off a bit, that there was some exceptional demand coming out of China for products, which was what was driving a lot of it. To a degree I think that demand is easing. We'd obviously love prices to stay high but the reality is we're in a cyclical business."

Market analyst Agrifax said it expects the drop in global milk prices will result in Fonterra's record forecast payout to farmers of $8.65 to be reduced by about 5 cents. Agrifax does not expect the price of dairy products in New Zealand to fall because of the Global Dairy Trade Index result.

The declines in dairy prices were broad-based, with milk powder falling 8 percent to $US4033, skim milk powder 9 percent to $US4126, anhydrous milk fat 11 percent to $US4062, butter 11 percent to $US4040, butter milk fat powder 15 percent to $US4211, cheddar 3.5 percent to $US4438 and milk protein concentrate 4 percent to $US8436.

Only rennet casein rose, by 5.5 percent to $US11,105. Volumes stood at 39,653 tonnes.