Milk powder prices fall 8.2% in Fonterra's fortnightly online auction; whole milk powder down 11.1%

Fonterra is forecasting a record payout for the current season of up to NZ$7.80/kg after retentions.

Milk powder prices fell 8.2% in a fortnightly internet auction overnight on Fonterra's globalDairyTrade platform.

This ended an unbroken period of rising milk powder prices that stretched back through 7 auctions to November 16 last year and saw prices rise 33% in 4 months.

See the full results here.

Prices had surged a total of 42% in the last year before the overnight auction and are still 30% above where they were a year ago ago.

Milk powder prices had risen 5.9% in the auction two weeks earlier. See our earlier article on that auction.

Wholemilk powder prices in the auction fell 11.1%.

The New Zealand dollar fell around half a cent overnight, although heavy selling on global stock markets after the Japanese nuclear concerns were also a factor.

The globalDairyTrade Trade Weighted Index of prices across various types of milk powders and prices had been at record highs before auction. The index fell 8.2% to 1,302 overnight. The auctions started in July 2008. A reconstructed version of the index going back beyond the start of auctions put the record high for the index at 1,613 in October 2007.

See our interactive chart here of all dairy prices, including sales prices monitored fortnightly by the US Department of Agriculture of sales in Oceania offline. It is also available below.

The index fell to a record low 596 in February 2009, meaning prices are still 118% above their lows.

Fonterra is forecasting a record payout for the current season of up to NZ$7.80/kg after retentions of cash to build Fonterra's shareholder capital. The cooperative increased the forecast last month by 60c/kg. See the full article here.

(Updated with NZ dollar move)

 

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30 Comments

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Commodity prices have been driven higher in the short trem through QE in the US. Given the expected expiry of QEII in Jun-11, the current risk adversion driven by Japan, and the delayed impact of the increased supply response from the previous higher prices, I am predicting a significant drop in milk prices in the short term. Of course, things may change in the US embarks on QEIII and Japan get the nucular issue under control.

Not sure how the NZ economy will cope with this

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Looks like there will be a QE 3.

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I don't........... think so....... now...I think the safety catch just went back on Old Bill Banging Ben's itchy trigger finger.......

all the while they search for things to profit by. 

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Don't you bet on it ....Bernanke's policies to date have him trapped into endless mouseprinting or opting to allow the bond market to do what those 4 nuclear plants have just done.

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OK Wally........you have you opinion.....I've lost bets before...thing is.. I'm comfortable with it.

I'll stay with that he holds fire at leasts till the dust settles and a clear view of the easy pickings lies in wait of vulturous descent.  

p.s. I am not a fan of Bill Banging Ben but even he takes direction.

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Read all of this Christov.... http://www.marketoracle.co.uk/Article26805.html

 

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And So read....Wally and much of it for at least the third time from the crusading Oracle...whose" impartial" viewpoint is now reaching fever pitch from thier cyber pulpit.

When you seriously bet against something or you have vested interests to gear your reader /follower toward............. it both devalues the input and casts doubt upon the integrity of the material.

That said Wally....no disrepect to you for subscribing to the source....each of us must travel a road we take comfort from with all it's familiarities.

Good luck as always.

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That applies to us all Count...I recognise all information is coloured and some is total BS....that said I invite you to counter the argument that the QE games leave the US Fed with a way out of the trap they are in. Please explain.

Bernanke's efforts have only served to bloat the fed liabilities and delay the day of judgement and meanwhile the us liars and crooks in Washington continue to argue over 100 billion while the economy is 14 thousand billion in debt with an estimated 51 thousand billion of liabilities going forward...

Help us all understand the pathway out from that!

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As you already know Wally I have no answer to to loop problem (short of instigatng a global war of cataclysmic proportion ..and picked the winner)...but then nor do you or Oracle offer any counterproposals that will bear scrutiny of minds much better than mine.

reality is Wally...we are all in this together for better or worse....and I don't even remember saying ...." I Do"

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Somebody has to lose....pretending the QE game will solve the problem is a farce...no different to Bollard pretending a lower ocr will save the NZ economy...

I expect inflation and for Bollard to be forced to stop playing the 'zirp' game...and for rates to rise leading to the recession deepening ...and Bollard having another bash at the start of 2014...an election year by chance!...."bit of pork buys many votes"..ancient wisdom from Wolly.

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Wally let me clarify...I don't support QE and if youv'e read any of my past input you would know that.....I was coining "the theft of a generations wealth" long before it was a popular topic......but i don't have an answer..leaving me to play the hand as it's dealt...and seek opportunity within that framework.

What I said was i believe Benny will take a breather ...that will be noticable enough for market confusion...before either seeing a new opportunity....or proceeding to prop up institutions that should lie rotting as we speak.

That said we are not privi to the consequences of ...THAT...reality and it's ramifications.

And yes somebody has to lose.... inevitabley irrevocabley.

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This chart clearly shows effect of QE2 (announced Aug 2010) on commodity prices.

http://www.bloomberg.com/markets/commodities/futures/

Recent falls because QE3 looking increasingly unlikely?

http://www.cnbc.com/id/42087534

Bollard's recent fiddling with the OCR is really pretty insignificant in the grand scheme of things

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The fall in price is no surprise given very high recent prices. Of more concern is that:

a) it is the main product (WMP) that has fallen the most - down 13% for contracts 1 and 2

b) prices for the longer dated WMP contracts are lower than short

c) the fall is despite only pitiful volumes (1,750 tonnes) of WMP being offerred for contracts 1 and 2

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Milk prices are very volatile so no surprises here but that is a significant drop

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well well well........I smell a perfect storm.....neco.....keep your eye on this and you will see the expansion of my post yesterday.

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Colin, is this caused by over production? looks like it to me.

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But home in la la land the economists are saying

 

 

An 8.2 per cent fall in the average price of milk powder on Fonterra's overnight online auction does not take the gloss off dairy payout prospects and is ''unremarkable'' given the Japan crisis, say economists.

NZ National Bank economist Cameron Bagrie says it has to be appreciated just how high prices have gone in the past three months.

"They are are still remarkably high. Buyers are a little more cautious, and that's been accentuated by global events."

Bagrie says the long-term outlook for soft commodities such a dairy products is still bullish, but the international market is likely to oscillate every six months.

Markets are also likely to reflect uncertainty about the intentions of central banks around interest rates, he says.

ASB chief economist Nick Tuffley says the overnight fall comes as global agricultural products generally are knocked back because of the Japan nuclear crisis.

"Financial markets are selling down and unwinding positions. It's hard to interpret from a fundamental point of view what this means for long term prices because of the turmoil (caused by Japan).

"Prices are still at strong levels which bodes well for payout. In the context of the time it's pretty hard to read anything into demand long-term."

http://www.stuff.co.nz/business/farming/4773324/Milk-price-still-high-de...

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The writing was on the wall before Japan. From the interaction of both increasing supply and falling real demand.

My view is if the senior bank economists are saying things are still good that should be taken as confirmation that they are not.

It is next season's payout that is of concern - this season is too far through to be greatly affected.

The international dairy price cycles are three years, not six months.

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nice encapsulation Colin R..indeed before the Tsunami....it was on the wall...perhaps the opportunity has been siezed to wash it off....lest anyone else sees it.

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Dairy prices bullish
Just about says it all

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Animal Lover you enjoy this website because there 'is' this website. There 'is' this website because advertisers pay for it, and, it is assumed, it is therefore worth Bernard's while to publish it.

Now take out the advertisers, what do you have left?

(Or are you the only one of us paying a subscription to Bernard?)

Mind you, on Firefox, at least, I don't get the ads you're referring to.

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Hi Animal lover,

Just wondering what Internet browser you use? We don't have any code telling ads to follow people as they scroll down. And also pretty much no ads 'below the fold'.

Cheers

Alex

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I think you will find it is the "flash player" content on the RHS of the landing page. I have unlimited cable and that content is the last to come up and the load process really does have a hernia. Even with cable. On the articles pages the charts and videos take a while to load up too. Flash while nice is not a good user experience.

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A long time since I used IE Animal Lover.

Tribeless is onto it with Firefox, although after a year of that I switched to Google Chrome. Works better for me for customising and is faster. No ad problem here.

Less risk of virus's also, but for almost complete virus protection try a Linux based operating system such as the free and well supported Ubuntu.

Unfortunetly because of CAD programs and Photoshop I have to use a dual boot setup.

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Agree with you Colin. Banks are lending for Dairy Farms at around $5.10 $ 5.20. Next years payout is going to be important. The amount of Powder available, how much of the volume was effected by disrupted Port. I think that payout will drop next season and  I also think that once world cup finished, high lamb price will fall as a lot of lambs are being bought in Feilding and go on up to Auck and will come on stream for Cup same with Beef. A lot of the stock being sold to create stockpile and even then will probably have to import from Aus to fill the shortfall.

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So who is going to stick their neck out and give me their best guess for the next two years ?

I might make some important decisions based on some random commenter so make sure that its justified !  The number of commentors that appear on here on a daily basis must have far more time on their hands to make an imformed guess on it than me.

I think it will be well down next year and the year after but by how much ???

Thanks

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Well (no one else seems keen).................I'd say your right (in the very short term)as a great deal of commodity prices are overpriced at the moment (hence the records of late) considering all the current world economic problems...but...people do need to eat and milk powder in particular is a valuable commodity EVEN in the the worst of times. Now add to that the secret closed door TPP talks which could have serious repercussions in either direction for NZ then you do set quite a challenge Simfarmer

I''ll say the next 2 years would be a tricky prediction considering the volatility of milk pricing even in 6 months terms, hence you even asking for an opinion ;-)

Alot will depend on China's demand for milk solids also.. 

My best guess would be an overall one at best and THAT would be an increase of atleast 20%. Why? inflation is with us globally even if the likes of the RBNZ and US FED are in denial. Food prices will rise and milk products will continue to increase considerably, not due to any shortage or any major increase in demand, but more to do with  transport & production costs which will continue to increase significantly. 

Take it or leave it

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I think many consumers, and especially those where dairy products are essentially discretionary spending, are going to say "I am going to leave it unless the price is lower than what I can afford".

That may well be a case of "take it or leave it".

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I tend to agree that consumer prices (ie the retail cost of milk, cheese and yoghurt etc) in NZ supermarkets to to high and people will stop buying them.  The NZ market is tiny though and hardly affects the payout at all.  In AUZ (where i'm farming supplying fonterra) the cost of milk is basically $1 a litre (for the homebranded stuff) and the payout will end up at $5.80 or so.

I think it will be lucky to make $A5 next year as my prediction.  That won't worry me to much but some people will struggle at that. 

Fundamentally I think dairy farms are too expensive and servicing far too much debt as we should be about to make it work at a $5 payout.  But again what do I know !