Dairy prices fall sharply at auction

International dairy prices fell sharply at the GlobalDairyTrade auction overnight, with the GDT Price Index dropping by 8.9 per cent to its lowest level since December 2012 and prompting a half-a-US-cent fall in the New Zealand dollar.

The price of whole milk powder - the most important product line for New Zealand producers - fell by 10.9 per cent to an average US3088 a tonne at the auction.

In the foreign exchange market, the The New Zealand dollar dropped from around US88.08c just before the release of the results to US87.55c just after. The currency later recovered some ground to trade at US87.60c.

"Its obviously directly related to the dairy auction," ANZ Bank senior foreign exchange strategist Sam Tuck said. "It is a significant move compared with what we have had lately, and it is a reasonable break down from that trading pattern of sitting happily above US88c," he said.

The auction result adds more weight to predictions that Fonterra may have to cut its 2014/15 farmgate milk price forecast, which currently sits at $7.00 a kg of milk solids. ANZ's forecast is for a farmgate milk price of around $6.25 a kg.

At the GDT auction, skim milk powder prices fell by 7.1 per cent to an average US$3516 a tonne and anhydrous milk fat dropped by 10.0 per cent to US$3250. Rennet casein prices fell by 8.9 per cent to US$9761.

The GDT price index dropped 8.9 per cent to US$,309 a tonne from US$3595 a tonne two weeks ago. Some 36,656 tonnes of product was sold, down from 41,513 tonnes two weeks ago.

Butter milk powder prices declined by 4.6 per cent to US$4426 a tonne and cheddar slipped by 1.6 per cent to US$4164 a tonne.

Neither lactose nor milk protein concentrate were offered at the event.

- By Jamie Gray, APNZ business reporter

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