Fonterra move hits prices

A milk tanker leaves Fonterra's Te Rapa dairy factory. Photo / Christine Cornege

NZX dairy futures drop sharply in response to co-op’s plan to put more product up for auction.

NZX dairy futures prices have fallen sharply after Fonterra said it would put more product up for sale on the GlobalDairyTrade auction platform.

The futures market, which gives an indication of where physical prices are heading, showed the April wholemilk contract dropped by US$130 ($171.51) a tonne to US$2520, the June contract by US$180 to US$2450 and the October contract by US$160 to US$2700 after the news.

The extra product is likely to weigh on prices at the next GDT auction, scheduled for next Wednesday. At the last auction on March 17, prices dropped by 8.8 per cent after putting on some big gains in February.

Fonterra said improved conditions over the past two months had led it to raise the amount of dairy product it would put up for sale on the platform.

At its first-half result on Wednesday, Fonterra said it now looked as if milk production would be down by 2 per cent compared with the previous year, rather than an earlier estimate of 3.3 per cent, thanks to the onset of rain in many regions after a drier-than-usual summer.

"A revision to our anticipated milk supply due to improving conditions across New Zealand over the last two months combined with changes in our demand balance has led to a change in the most recent GDT offer quantity forecasts," Fonterra said.

Forecast offer volumes over the next 12 months have been increased by 12,140 tonnes, with 10,900 tonnes occurring over the next three months and the remainder spread over the following nine months, Fonterra said.

Wholemilk powder offered by Fonterra on the GDT auction is the main contributor to the change, with a 6230-tonne increase over the April to June period.

In addition, after its launch of Australian skim milk powder sales in January, Fonterra said it would increase its offering over the next 12 months by 5785 tonnes.

AgriHQ analyst Susan Kilsby said prices were likely to remain weak in the coming months before picking up again. "There's not a lot to support the market at the moment as there's still a lot of milk around and there's nothing really supportive for the next month or two," she said.

"So long as extra volume is being added into GDT, that's going to put downward pressure on prices."

Meanwhile, exchange operator NZX said trading in dairy futures resumed yesterday morning after it had been put on hold pending clarification of the volume of Australian skim milk powder being put on the GDT platform. NZX said it was investigating displaying the Australian skim milk powder volumes separately on the dairy futures website.