Auction result shows market fairly stable, says Fonterra

The latest online auction by dairy giant Fonterra shows the market is enjoying a period of relative stability, says Fonterra globalDairyTrade manager Paul Grave.

"You have to put this in context of where the market's been over the last 12 months ... rises as high as 25 per cent in a month," Grave said.

Fonterra sold US$138 million ($204 million) of product, with a trade weighted index covering a basket of products down 3.5 per cent and the average price for whole milk powder, which accounted for about 60 per cent of products sold through the online system, down 3.4 per cent to US$3790 a tonne.

"We've seen a slight downward price adjustment that may reflect the increasing availability out of Europe, a signal from Fonterra through [globalDairyTrade] that it's got more volume available through this channel, the euro's weakened against the US dollar quite considerably since the last event so that's making European supply much more competitive on the world stage," Grave said.

Fonterra expected to sell about 530,000 tonnes through the online system during the next 12 months.

There were some market concerns about supply in the short term, he said.

"People just need to secure supply and there's not that much availability for immediate delivery because of the drought in New Zealand, very dry weather conditions in Australia etc."

In the long term people were probably a bit more confident about supply because globalDairyTrade had forecast it was increasing supply, Europe was coming into its peak season and the US seemed to be increasing milk production, Grave said.

On the other hand, buyers were reluctant to commit long term at the moment, he said.

"So people are still a little bit uncertain about what the future holds post the financial crisis."

There was still a lot of inherent volatility in the economic environment, Grave said.

"We would expect to see prices moving up and down within the ranges that we've seen recently for the next wee while."