Fonterra suppliers are calling for an independent review of the company's Internet auction system after prices for whole milk powder at yesterday's globalDairyTrade plunged to less than half their July value.
Federated Farmers dairy section chairman Lachlan McKenzie said the 9.3% decline in value at Tuesday night's auction added to the lack of confidence gripping dairy farmers.
The average contract price for whole milk powder at the latest sale was $NZ3418 ($US2017) a tonne, compared to $3767 ($US2223) in December, which was 14% lower than November.
This week's price was less than half the $7627 ($US4500) paid when the auctions started last July.
Prices at this week's sale ranged from $3223 ($US1902) to $3627 ($US2140).
"To instill confidence, farmers want an independent review of the auction system to ensure it is not contributing to the fall in product prices," he said in an interview.
Mr McKenzie, a Fonterra supplier and shareholder, has started lobbying company directors to initiate a review.
He said auctions were not suited to a bear market, reiterating comments by competing dairy companies, who blame the auction for driving down world dairy product prices.
"Would you sell your house by auction at the moment?" he asked .
Fonterra said there were signs in the auction that the rapid slump in world dairy prices may have bottomed out as buyers reacted to tighter global milk supplies.
Managing director of GlobalTrade, Kelvin Wickham, said spot prices rose 1.3% compared to December.
"We believe we are getting near the bottom of the cycle."
The global supply of milk had fallen, with New Zealand production behind budget, drought affecting supplies in Argentina, milk prices falling below intervention levels in the United States and Europe, and in many markets the cost of imported milk powder was lower than locally produced product, he said.
"Our own supply and demand analysis indicates that we are near the bottom of the price cycle.
"While global inventories still need to be worked through, the current price levels represent excellent buying."
While supply was tightening, Mr Wickham said demand still had to recover, which would take time as retailers reduced inventory and stock.
He expected a recovery later this year as inventories were cleared, but in the meantime, price uncertainty would continue.
Contract prices reflected the current market which, he said, was the result of a cyclical lag between supply and demand but accelerated by the global financial crisis and recession.
Mr Wickham defended the auction saying it was just a sales vehicle and buyers would only pay for product what they considered it was worth.
While competing New Zealand dairy companies claim the auction was reducing prices, Mr Wickham said some were yesterday selling milk powder cheaper than the auction price.
"I struggle to see how we are driving prices down."
Meanwhile, commodities prices in December have recorded their fifth successive monthly fall according to the ANZ Commodity Price Index, with the index now 27% below its July 2008 peak.
Bank economist Steve Edwards said all commodities except apples fell in the latest survey, the broadest monthly drop of New Zealand commodities since the survey began in 1986.
Pelt prices have fallen 62% since November and have reached a new low, aluminium fell 20% while wool and dairy both fell by more than 12%.
Wool prices have fallen for six successive months and Mr Edwards said it was just 2% above the lowest recorded level.
Log prices fell 4.4%, wood pulp 3.7%, sawn timber 2.2%, seafood and lamb 2.4% and venison and beef 1.4%.
