Third consecutive drop in Global Dairy Trade auction

Prices have fallen significantly in the latest Global Dairy Trade auction overnight, with a 3.6 per cent drop across the board.

It's the third consecutive decline following a record peak on March 1.

The biggest slide came from whole milk powder (WMP) - which also has the biggest influence on Fonterra's farmgate milk price and fell 4.4 per cent to an average US$4207/MT.

Skim milk powder - Fonterra's second biggest reference product - dropped 4.2 per cent to an average US$4408/MT, but remains ahead of WMP in value for a second time.

All other products on offer also recorded declines.

Cheddar fell 3.9 per cent to an average US$6185/MT, while butter also softened considerably - down 3.7 per cent to an average US$6640/MT.

Lactose, followed suit with a 2.4 per cent dip, to an average US$1565/MT, and anhydrous milk fat dropped 1.3 per cent to an average US$6802/MT.

Sweet whey powder was not available, while butter milk powder was not offered at this event.

The volume of product traded was similar to the previous event, at 22,179 MT sold to 115 successful bidders.

Fonterra in February lifted its 2021/22 forecast farmgate milk price range to NZ$9.30 - $9.90 per kgMS, up from NZ$8.90 - $9.50 per kgMS.

This increased the midpoint of the range, which farmers are paid off, by 40 cents to $9.60 per kg, which would be the highest ever paid.

While the event result was "disappointing," it was due to "short-term issues," Fonterra chief financial officer Marc Rivers said.

The biggest of these was Covid, especially how it was affecting China and indirectly impacting other economies such as Sri Lanka, Rivers told The Country's Jamie Mackay.

Fonterra's long-term outlook had remained consistent, Rivers said.

"We've still got pretty steady demand out there. Supply remains pretty constrained but we do have a confluence of short-term issues that are showing up in last night's GDT event."

The co-op was keeping an eye on China's zero-Covid policy as well.

"You can't really go around the storm you have to go through it. So, it's a matter of how China gets through it and what that means for consumer demand."

Rivers remained cautiously optimistic about China, despite its lockdowns and the threat of Omicron.

Listen below:

"To some extent, we saw this two years ago when China first went through it and managed to bounce back pretty quickly.

"I think Omicron is a different beast so we'll see how quickly things can bounce back to where consumers are able to consume what they want and go out shopping.

"At the moment the lockdowns are pretty severe and this is having an effect."

Also in today's interview: Rivers discussed this season's payout, constrained world milk supply and how Fonterra was navigating supply chain issues.