Milk powder prices will fall at auction

Futures market pricing suggests whole milk powder prices will fall by about 10 per cent at Wednesday morning's GlobalDairyTrade (GDT) auction, OM Financial says.

Fonterra's board will meet on Friday to review the farmgate milk price for 2015/6, which currently sits at $5.25 per kg of milksolids. Some bank economists expect the forecast to drop to the low $4s, or to perhaps the high $3s - well below the estimated break-even point of $5.70 per kg.

The middle of the wholemilk powder curve continued to edge up as the market digested the forecast changes to GDT volumes, Nigel Brunel, director of financial markets at OM Financial, said.

"It's going to be a busy week this week for milk," he said in a commentary. "GDT is on Tuesday night (Wednesday morning NZ time) and even though we have seen a small recovery in the curve - the current futures suggests we will be up to 10 per cent lower."

ANZ said this week's auction will be crucial for where Fonterra's forecast is pitched, particularly as the next eight auctions will account for some 45 per cent annual sales for wholemilk powder.

"For us another decline seems likely followed by a period of stability at low levels," ANZ said.

The two most likely catalysts for improvement will be China increasing its purchases and/or New Zealand milk supply declining, ANZ said.

"Given it is still relatively early in the season Fonterra are likely to build in a more optimistic forecast and therefore pitch their 'reforecast' around the $4.25-$4.50/kg mark," the bank said.

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