Milk powder auction price falls 12% in June to near February low

The average whole milk powder price fell 12% from May in Fonterra's latest Internet auction and almost hit February's low since the auctions began in July last year. The average price for all products sold at the auction was US$1,886/tonne, compared to US$1,851/tonne in February. This latest drop followed a 4.1% drop in the average price in May. "Today's result indicates lower demand for the longer-term contracts, and confirms our view that international dairy markets will remain weak until consumer demand improves," Managing Director of Fonterra GlobalTrade Kelvin Wickham said. "We need a sustained pick-up in customer and consumer demand to see any meaningful recovery in prices and that is not occurring as fast as we would like. And there's increased uncertainty in the market because of the recent announcement of US subsidies and talk of European retaliation," Wickham said. The weighted average price for longer term-contracts, to be shipped from New Zealand ports between December 2009 and February 2010, fell to its lowest price since the auctions began, down 59% from July (and 14% from May) to US$1,814/tonne in June. This latest result dashes Fonterra's hopes in April the market might be recovering and will put further downwards pressure on the likely payout for 2009/10, which was forecast last week at NZ$4.55/kg. That was before this latest poor auction and the currency's rise over 65 USc. The current payout forecast assumes a currency at 59 USc. Dairy farmers in New Zealand are angry that the United States announced plans last month to subsidise its exports, responding to similar subsidies announced by the European Union. The average price for medium term contracts (to be shipped between September and November 2009) fell 12% from May to US$1,894/tonne. This was up slightly from February's low of US$1,860/tonne, and 57% down from July. The average price for shorter term contracts (shipment in August) fell 8% from last month to US$2,002. This was 54% down from July prices. Despite the fall in prices, the volume of whole milk powder traded through the auction rose to 18,000 tonnes, its highest since December.