Price of milk powder drops

The average milk powder price in Fonterra's global Dairy Trade has fallen for a second month in a row leaving prices 8.5 per cent below December figures.

The February auction, which closed this morning, saw whole milk powder achieve US$3,256 per tonne, down US$53 per tonne on January's average which itself was down by 7 per cent on December's price. Prices ranged from US$3,175 to US$3,355 per tonne.

Anhydrous Milk Fat (AMF), which was recently added to the auction offering by Fonterra, sold for an average of US$4,183 per tonne, US$356 per tonne (or 7.9 per cent) less than in January.

The second drop comes after five consecutive rises last year,which combined to produce a 95per cent increase in milk powderprices.

Fonterra uses the auction results to benchmark prices of the rest of its products.

The market is so unpredictable hat Fonterra had prepared two media releases ahead of the result, one saying the result was up and one saying it was down, a pokesman said.

Paul Grave, the manager of globalDairyTrade, said this morning's result was positive given market conditions. Dairy commodities were selling within an acceptable price range, Mr Grave said.

''You have to remember we are coming off the back of pretty hefty price increases earlier in the season,'' Mr Grave said. ''It just reflects that the market is bouncing along.''

The price drop comes as the Upper North Island, especially Northland, continues to feel the effects of drought and milk supply begins to ramp up, for the season, in the United States and European Union.

Asked whether Fonterra was likely to revise its payout forecast of $6.05 per kg of milk solids, Mr Grave said there would be no immediate impact on the forecast.

''There are a number of factors effecting the payout forecast, the whole milk powder price on
globalDairyTrade is only one,'' he said.

''We will have to wait until the board reconsiders the payout again . . . it's business as usual . . .there's no immediate change.'' The next globalDairyTrade auction, on March 2, will include skim milk powder.