Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said whole milk powder auction prices extended their decline on slowing global demand and the resumption of export subsidies by the European Union.

 

Milk powder for April delivery fell 12 percent from the March price set last month, according to the company’s GlobalDairyTrade Web site. Prices dropped in six of the seven preceding auctions and are down 58 percent since the company began the monthly sales in July.

 

World prices of butter, milk and cheese have fallen from record highs 14 months ago as the slowing global economy capped demand for commodities and the U.S. and Europe increased dairy exports. Fonterra last week slashed its New Zealand milk price forecast for the third time in four months and said the January resumption of European subsidies had already depressed markets.

 

“Prices remain under pressure due to weak demand,” Kelvin Wickham, managing director of Fonterra’s global trade unit, said in a statement. “People are expecting, or waiting to see if the EU increases subsidies in the future.”

 

March milk powder prices rose 1.3 percent at the last sale on Jan. 6, the first increase since auctions began. A week later the European Union said it would resume export subsidies and purchases in the domestic market. It paid sellers as much as 200 euros ($260) a ton on 5,612 tons of skim milk exports at a Jan. 23 tender.

 

While the subsidies have made buyers rethink the market’s potential low point, there was no guarantee that February 3rd prices would have been higher without them, Wickham said in an interview from Auckland. Inventories are being drawn down and buying in the European domestic market should also tend to put a floor under that market, he said. “We are in the trough of the market.”

 

Fonterra’s Internet-based auctions offer a one-month contract with delivery starting two months after the sale, and two three- month contracts with delivery starting three and six months later.

 

In sales on February 3rd, powder for April delivery fell to an average $1,844 a ton.

 

Powder for delivery May through July fell 4.8 percent to $1,860 a ton, Fonterra said. Powder for shipment from August through October sold for an average $1,845 a ton, down 10 percent.

 

The price of milk powder from Australia and New Zealand is near a five-year low, according to the U.S. Department of Agriculture.

Prices at these levels are not sustainable for suppliers and should be “very attractive” to buyers, Wickham said. “Supply is slowing and inventories are running down.”

Source: Bloomberg – New Zealand