Milk powder prices down 13.7% in Fonterra's monthly internet auction on growing supplies

Fonterra has reported milk powder prices in its monthly internet auction fell around 13.7% in its auction overnight as supplies started rising in response to higher prices in previous months.

The globalDairyTrade TWI index of prices in the overnight auction was down 13.7% from the previous month. There was a record 57,000 tonnes of milk product sold in the auction, up from 35,600 tonnes the previous auction.

The result will worry some farmers who were expecting Fonterra's payout in the just started 2010/11 season to rise beyond the current official forecast of around NZ$7/kg to the potential indicated by Chairman Henry van der Heyden of NZ$8/kg.

Any sustained fall in dairy commodity prices would also take the wind out of the sails of New Zealand's economic recovery, which is being driven more by the export sector than the heavily-indebted household sector.

The New Zealand dollar dipped to 69.25 USc in early trade from 69.75 USc after the auction news emerged and as US stock markets gave up their early gains.

"The result reflected supply increasing globally in response to what has been a very strong price signal over recent months," said globalDairyTrade Manager Paul Grave.

"Concerns in the market about short term product availability, which to a large extent underpinned recent high prices, appear to have eased," he said.

The average price of anhydrous milk fat fell 14.1% to US$4.620 per tonne, while the average price of skim milk powder fell 11.8% to US$3,067 per tonne and the average price of whole milk powder fell 14.8% to US$3,224 a tonne.

GlobalDairyTrade's Trade Weighted Index chart below shows the TWI has fallen back to levels last seen earlier this year.

GlobalDairyTrade has more detail here on the auction results.

See our interactive dairy commodity prices charts below and here in our charts section.