KEY POINTS:
Fonterra says whole milkpowder prices today fell for a fifth time in its internet auctions, taking them to their lowest in more than two years.
Fonterra's trading manager, CRA International, said the average price across all products and contract periods for whole milkpowder (WMP) was $US2223/tonne, 14 per cent lower than for the previous auction in November.
Prices ranged from $US2045 a tonne to $US2455 a tonne, with milkpowder for February delivery down 15 per cent to an average US$2078 ($NZ4000) a tonne.
The sale finished at 3.10am today.
"The current economic crisis has resulted in a significant drop in the demand for dairy commodities, and a continued decline in prices was expected," said Guy Roper, Fonterra's commercial director of GlobalTrade.
"There will continue to be downward pressure on prices, until either the supply of product declines, or buyers have confidence that the global economic situation will improve."
Fonterra said that over the past two years, the United States Department of Agriculture had reported a 45 per cent decline in EU Skim Milk Powder (SMP) prices.
The prices of other agricultural commodities such as barley, maize and wheat had fallen by similar amounts.
Fonterra is selling around $1 billion of whole milkpowder on the internet trading platform in its first year of auctions, which were announced as a response to increased price volatility in international markets.
Prices for wholemilk powders which had traded in a band of US$2000 to US$2500 a tonne for 15 years shot up to US$5000 last season, but Fonterra missed out on a lot of those windfall profits last summer because much of its production had been committed in advance sales at lower prices.
The latest slump raises fresh questions about Fonterra's payout forecast for the current season of NZ$6.00/kg of milk solids, which is down from last season - and made before the latest slump.
A payout well below NZ$6.00/kg now looks likely, particularly given reports that fellow cooperative Westland Milk Products is now forecasting a payout of NZ$5.20-$5.60 a kg, which is down from its NZ$7.99/kg the previous year.
Fonterra controls about 40 per cent of the global trade in milk powders, cheese and butter, but milk production in north America and Europe has risen at the same time as customer reaction to last year's record prices has eroded demand.
Last season's Fonterra payout was $NZ7.90, nearly double the 10-year average of $4.20. The average farmer was paid nearly $900,000 but the company has warned its 10,724 farmers will receive 24 per cent less for their milk this season.
A small rival dairy company, Westland Milk Products, which paid its farmers a New Zealand record $8.29/kg milksolids last season, last week criticised Fonterra's internet auctions for speeding up the slump in international dairy prices.
Westland chairman Ross Scarlett said that when Fonterra put small parcels of products up for auction over the internet, it gave buyers more say in price-setting.
"We don't think Fonterra's policy has been helpful in a declining market," Mr Scarlett said.
Dairy Australia, the main industry body on that side of the Tasman, said in its recent "situation and outlook" update, that buyer activity was now decreasing in the weeks leading up to the auction, because buyers were using the auction as a new pricing basis for trade outside the online platform.
But Fonterra's global trade managing director Kelvin Wickham has said the auction gives the international market a transparent price and all the internet trades were doing was "making it more transparent more quickly".
- NZPA, INTEREST.CO.NZ
