Milk powder prices down 14% in latest Fonterra auction

Milk powder prices down 14% in latest Fonterra auction

Whole milk powder prices fell 14% between Fonterra's internet auction in November and its latest auction in December, Fonterra said, adding prices had now fallen 49% since July 2008. 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 NZ$7.66 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. The prospects of a lower Fonterra payout adds to the pressure on the Reserve Bank to cut the Official Cash Rate by as much as 150 basis points on Thursday to bolster an economy that had been relying on an export recovery to end the current recession.

Fonterra said that there would continue to be downward pressure on prices until supply declined or buyer confidence improved. "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 Fonterra's Commercial Director of Global Trade Guy Roper. "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." In November, Fonterra cut its forecast payout from NZ$6.60 to NZ$6.00.

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