Milk offers from Fonterra, the New Zealand giant hit by a botulism scare, continued to lose premium over US alternatives even as dairy prices rose at a benchmark auction, recovering to among their highest levels since April.
Prices at GlobalDairyTrade, the physical dairy auction run by Fonterra, rose 2.3% at Tuesday's event, with prices of anhydrous milk fat prices particularly strong, soaring 7.1% to a four-month high.
Values of whole milk powder, which account for the majority of volumes for sale, gained 2.7%, also reaching their highest since April.
However, values of skim milk powder, the product in which GlobalDairyTrade offers the most rivals to Fonterra product, fell, as buyers switched to lower-priced alternatives from India's Amul and US-based DairyAmerica.
Fonterra vs DairyAmerica
While prices of all Fonterra skim milk powder contracts fell from those at the last event, on August 6, DairyAmerica skim milk powder soared by up to 12.6%.
On the October contract for regular medium heat supplies, the best comparison point between the two groups' supplies, Fonterra prices fell 4.3%, while DairyAmerica saw a 2.9% uplift.
The price moves narrowed to 5.7% the premium of Fonterra product over the DairyAmerica alternative, down from 13.6% at the previous event.
The premium was 20% on July 16, the last GlobalDairyTrade auction before Fonterra revealed the discovery in some whey products of bacteria which can cause botulism poisoning.
The premium of Fonterra skim milk powder for October over rival supplies from India's Amul narrowed to 38% from 47% at the previous auction.
The results come as Fonterra is continuing to tackle the aftermath of the tainting scare, which has prompted a series of inquiries, both internal and from New Zealand authorities.
Fonterra last week revealed the resignation of Gary Romano, the head of the NZ milk products, the division responsible for the contamination.
The co-operative, New Zealand's biggest company, also placed two senior managers on leave.
Tuesday's GlobalDairyTrade auction also showed a sharp drop in volumes sold, by 7.3% from the last event to 56,173 tonnes.
Fonterra last week cut by 4.9% its forecast for total dairy products sold through GlobalDairyTrade over the next 12 months.
The biggest decline was in whole milk powder, for which the forecast for sales volumes was cut by 8.3%.
The downgrades follow a difficult start to calendar 2013 for New Zealand milk supplies thanks to drought which, through the impact of higher slaughter rates and depleted feed supplies, continues to overshadow the dairy industry in the top exporting country.
"The 2013-14 production season for New Zealand has just started, with pastures and cows being generally in good condition but supplementary feed reserves are low on some farms," National Australia Bank said.
"Therefore a reasonable, but not spectacular, start to the season is expected."