Fonterra's moves to reduce the amount of product on offer on the GlobalDairyTrade platform appear to be having the desired effect, with prices rising by 10.9 per cent at yesterday's auction, but the market has a long way to go before the co-op's milk price forecast can be realised, say economists.
Whole milk powder prices, which are the key to determining Fonterra's farmgate milk price, rose by 12.1 per cent to an average US$2078 a tonne. Most product groups posted gains at the auction, with butter milk powder rising by 30 per cent to US$1829 a tonne and skim milk powder by 11.7 per cent to US$1698 a tonne.
Fonterra last month cut its farmgate milk price to $3.85 per kg of milksolids, from a previous forecast of $5.25 - well short of DairyNZ's break-even estimate of $5.40 a kg.
Whole milk powder prices need to reach US$3000 a tonne by next year for Fonterra to deliver on its latest farmgate milk price forecast.
AgriHQ's theoretical farmgate milk Dairy prices rise at auction as Fonterra cuts offering