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Dairy product prices extend slide, falling 2.6% to 14-month low, paced by whole milk powder

Dairy product prices extended their slide to a 14-month low in the latest GlobalDairyTrade auction, paced by whole milk powder, raising speculation Fonterra Cooperative Group's forecast record milk payout may not be sustainable.

The GDT price index dropped 2.6 percent to US$4,047 a tonne, from US$4,124 a tonne two weeks ago, the fifth straight decline and the lowest since February 2013. Some 36,549 tonnes of product was sold, down from 39,653 tonnes two weeks ago.

In February, Fonterra raised its forecast payout to farmers to a record $8.65 per kilogram of milk solids for the 2013/14 season, saying the company used its discretion not to raise the forecast by the further 70 cents implied by the manual used to calculate the Farmgate Milk Price. Since then, the GDT price index has dropped almost 20 percent. In March, Fonterra forecast New Zealand milk volumes would rise 7.5 percent to 1.57 million kgMS this season.

"The record dairy price run has come to an end," Nick Tuffley, chief economist at ASB, said in a note yesterday. "This season's boost (in volume) is coming from the incentive that Fonterra's $8.65 milk price forecast is giving to farmers to crank the handle on production. Not surprisingly, prices have fallen in response to strong production."

ASB is now expecting the milk payout this season to recede back to $8.50 per kgMS.

In the latest GDT auction, whole milk powder fell 1.6 percent to US$3,990 a tonne. Rennet casein fell 4.3 percent to US$10,630 a tonne while cheddar fell 3.3 percent to US$4,273 a tonne. Skim milk powder dropped 4.4 percent to US$3,969 a tonne and butter declined 4.9 percent to US$3,832 a tonne.

Butter milk powder fell 8.6 percent to US$4,075 a tonne and milk protein concentrate declined 7 percent to US$7,824 a tonne. Lactose wasn't offered at the event.

The New Zealand dollar was trading at 86.43 US cents immediately before the 2:50am release. It dropped as low as 86.24 cents but has since recovered and was recently trading at 86.40 cents.

There were 148 winning bidders out of 199 participating bidders at the auction over 12 rounds. The number of qualified bidders rose to 764 from 756 at the last auction.

(BusinessDesk)