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Fonterra milk prices fall

Wednesday 6th January 2010

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The price of whole milk powder eased from a peak in December to register its first fall in six months in Fonterra Cooperative Group's online trading auction, though prices are still strong compared to the trough in July.

The average price of whole milk powder slipped 7% to US$3,309 per metric ton, according to the globalDairyTrade website, the lowest since October last year, though still 81% above its low in July.

The price of anhydrous milk fat gained 4% to US$4,539 per metric ton.  

"It's no surprise at all, and Fonterra warned towards the end of last year there was some downwards pressure on prices," said Stephen Toplis, head of research at the Bank of New Zealand.

"People have to remember, and they continually forget, that these are commodity prices, and if they push too high, you start getting buyer resistance."  

Fonterra expects dairy prices to begin easing when the milking season begins in Europe and America in March/April, after a period of surging prices caused by buyers restocking depleted inventories after running them down in response to the global financial crisis.  

globalDairyTrade manager Paul Grave said the correction showed markets were more "closely in balance" amid a pick-up in demand and tight supply.  

Commodity price gains have been offset by a surging local currency which has climbed almost 50% from its sub-50 U.S. cents low in March.

The New Zealand dollar recently traded at 73.40 cents from 73.65 cents before the results were announced.  

Toplis said volatile dairy prices weren't helpful, and a small correction now would help prevent a larger one later in the year.

The point of the auction site was to limit these extremes.  Stock exchange operator NZX  announced last month it would use Fonterra's globalDairyTrade as the benchmark for its futures contract to be launched this year, and chief executive Mark Weldon has indicated the company would be interested in taking over the platform, though he's had no discussion with the dairy exporter on the possibility.  

New Zealand's exports of milk powder, butter and cheese slumped 32% in October to $677 million from a year earlier, while casein and caseinates tumbled 43% to $58 million.

Dairy products account for about 23% of the country's annual $40.7 billion worth of exports.

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