The dairy industry could be in for more bad news with milk powder prices expected to ease further at Fonterra's first global auction of the new year being held tonight.
Sources fear whole milk powder prices could fall from an average of $NZ3900 ($US2300) a tonne in December's auction, to $NZ2500 ($US1500) a tonne this week due to the rapid easing of international dairy prices.
Such has been the decline, Fonterra and other companies have started stockpiling product.
Prices at Fonterra's globalDairyTrade auction fell 14% between November and December and have fallen regularly since the auction started last July when the average price was $NZ7600 ($US4500).
Fonterra and major milk producers such as the United States have started stockpiling milk powder in response to the collapse in prices, but Fonterra said its inventory was in line with historic levels.
A spokesman declined to disclose its inventory levels, citing commercial sensitivity.
It was known the dairy giant had been seeking temporary warehouse space, and in November purchased the former Fisher and Paykel plant at North Taieri where it planned to build a 45,000 tonne dry store and a 17,000 tonne cool store.
Construction would begin in July.
There was further evidence last week that international prices continue to soften, with Fonterra advising shareholders it was reviewing this season's payout due to weak market conditions.
It had previously given shareholders an undertaking to review the payout earlier than scheduled should market conditions indicate a shift in the payout of 30c a kg of milksolids (kg/ms) or more.
The payout has already fallen from $7.90 kg/ms, although the company retained 24c kg/ms of that payout, to an initial forecast payout of $6.60 for this season, which in November was revised down to $6 kg/ms.
There is speculation among the dairy industry the final payout could fall to between $5.10 to $5.25 kg/ms.
A recent story in the New York Times said the United States Government had spent $NZ154 million ($US91 million) buying more than 50,000 tonnes of milk powder which was being stockpiled to underpin tumbling prices caused by a milk glut.
It last bought milk powder in 2006 which was later used in government nutrition programmes, given away as animal feed or sold on the open market.
The US Government was expected to start buying cheese to put a floor in the market as well.
Dairy industry sources were worried stockpiled milk powder could delay a price recovery, with buyers using the surplus of product to keep prices low.
Only a fraction of US stockpiled milk powder was up to export quality, with the balance consumed domestically, and sources said that would dampen demand in the US market and mean powder destined for the US would have to be be redirected to other markets.
At a time when international prices were plummeting, Fonterra's globalDairyTrade had been criticised by rival dairy companies for forcing down prices by setting a public price and forcing buyers to delay purchasing.
There have been calls from Open Country Cheese, Westland Milk Products and Dairy Trust for the monthly auction to be put on hold until prices recover.
Fonterra claims easing prices were in line with falling returns for all commodity products and milk powder prices achieved by the auction reflected reality.
