Fonterra milk powder prices fall to two-year low

Wednesday 3rd December 2008

Fonterra Cooperative Group, the world's largest exporter of dairy products, said prices for milk powder fell in its latest auction, the fifth straight decline, as slowing global growth crimps demand for commodities.

Milk powder for February delivery, Fonterra's nearest contract, fell 15% to US$2,078 a tone in this week's auction, the lowest since September 2006, according to results posted on its globalDairyTrade website. The March contract also fell 15% to US$2,284.

Fonterra last month cut its forecast payment to farmers after a 24% slide in global prices for dairy products in the past eight weeks and the prospects of a write-off of its stake in disgraced Chinese dairy company San Lu.

The revised forecast is for $6 a kilogram of milk solids for the 2008/2009 season, down 60 cents from the previous estimate in September.

Dairy prices have joined a broad downturn in commodities on speculation the slowing global economy needs less raw materials, fuel and food. Crude oil for January delivery fell 4.7% to US$46.96 a barrel on the New York Mercantile Exchange yesterday, the lowest since May 2005.

The dairy co-op doesn't expect a pick up until later next year.

By Jonathan Underhill

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