GlobalDairyTrade fall not unexpected

The decrease in the price of whole milk powder in Fonterra Cooperative Group’s internet auction this week was expected as the market begins to level out.

“I would rather the price of whole milk powder fall slightly now than fly too close to the sun and crash to the ground later,” says Lachlan McKenzie, Federated Farmers Dairy chairperson.

“This is the first time in six months that the price of whole milk powder has dropped. But it’s not like seven percent is a significant fall, considering we are still receiving one of the highest whole milk powder prices in 18 months.

“Even with this week’s result, dairy farmers are in a significantly better position than we were earlier last year, when the market was enveloped by recession.

“So in spite of the fact many farmers are still using their profits to pay off debt, dairy farming remains a very viable business.

“The price of whole milk powder may have fallen slightly this week to US$3309 per tonne, $251 less than last month’s auction, but that’s nearly 90 percent higher than the price in July last year.

“Reasons for the fall are varied but the main cause was signalled in December’s auction, when longer term contracts did not attract the past premiums. However, supply in many countries is now increasing in response to price signals.

“In New Zealand, we have passed peak milk production, so it’s no surprise to see the price of whole milk powder drop.

“At the same time, farm businesses are operating in a very fragile economic environment, as the global marketplace begins to recover from recession. This is reflected in the volatility of the New Zealand dollar and see-sawing commodity markets.

“Still, though, the price of whole milk powder indicated by globalDairyTrade represents just one day on the market. That’s why I wouldn’t read too much into what is essentially a snapshot of the marketplace at one point in time,” Mr McKenzie concluded.