“We were expecting in the short term to see prices ease back and in the long term for the markets to get strong again,” she said.
She was surprised at the size of the drop.
The lower prices for whole milk powder (WMP) opened the market up to other countries.
“At US$5000 a tonne China can buy milk powder but poorer regions like North Africa can’t afford it, but at $4000 a tonne if becomes more affordable.”
WMP, the biggest product sold by volume, fell 8.4% to US$4033, its biggest decline since May last year.
The drop in prices attracted more participants.
There were 167 winning bidders out of 201 participating bidders at the auction which went for 11 rounds.
The number of qualified bidders rose to 756 from 747 at the last auction.
Kilsby said it was hard to tell if the GDT price drop would make Fonterra’s two guaranteed milk prices (GMP) more attractive as the company had not revealed what level the GMP would be set at. The Agrifax milk price forecast for the 2014-15 season is $7/kgMS, so it is likely that Fonterra's opening milk price for next season will be about this level.
The Agrifax Dairy Farmgate report said whole milk powder prices have dropped 20% on the GlobalDairyTrade auction in the past six weeks and similar falls in prices have been recorded for other dairy commodities.
The rapid fall in dairy commodity pricing is putting pressure on Fonterra’s $8.65/kg milksolids (MS) farmgate milk price.
Agrifax calculations, based on prices remaining at current levels for the remainder of the season, put the milk price at $8.60/kg MS.
Should dairy commodity prices drop by a further 10% at the next GDT auction and remain at that level for the rest of the season then this could drop the milk price to $8.45/kg MS.
