Dairy prices cool as Fonterra moves to top up market

NZX trading yesterday put the March wholemilk powder contract at US$3200 a tonne and October's at US$2900 a tonne. Photo / NZME.

Preliminary signs have emerged that dairy prices have started to flatten out after piling on some big gains in February, according to the NZX dairy futures market.

Dairy futures have been falling for the past week or so, ever since Fonterra announced that it would be putting more product on the market for sale through the GlobalDairyTrade platform over the next few months.

Up until then, the forward price curve indicated prices of US$4000 ($5446) a tonne by July-August for whole milk powder. The market has gone from an upwardly sloping curve to a downwardly sloping one in the past few days.

NZX trading yesterday put the March wholemilk powder contract at US$3200 a tonne and October's at US$2900 a tonne.

"It's indicating that the price increase that was evident in February has now slowed right up and that the curve has gone from an upwardly sloping one to downwardly sloping," Kilsby said.

What drove prices higher in the first instance was the prospect of lower production caused by drought.

Since then, Dairy Companies Association of New Zealand data has shown that production fell by just 1.25 per cent in the January year.

"It has basically made buyers question whether there really is a drought ... or the extent the drought," Kilsby said.

"That upward momentum that we saw in February has disappeared for the moment."

The futures market is far from a cast iron indicator of prices to come, but Kilsby said Fonterra might struggle to meet its farmgate milk price of $4.70 a kg of milksolids if the signals coming from the market prove to be correct.

At last week's GlobalDairyTrade auction whole milk powder fell by 1 per cent to US$3241 a tonne, while the price of skim milk powder rose by 5.9 per cent to US$2935 a tonne.