A reluctance by buyers to commit to advance supplies has driven whole milk powder prices to their lowest for five years at Fonterra's latest monthly internet auction.

The New Zealand co-operative, which is the world's biggest dairy exporter, said that prices for September powder fell to $1,841 per tonne in its GlobalDairyTrade auction, down 8% on the month.

The price, down 58% year on year, was the lowest since December 2003.

Fonterra blamed the fall on continued wariness among customers about "paying too much in an uncertain environment".

'Rebalancing phase'

While milk supplies had fallen sharply, the recession had dented dairy consumption too, the company added,

"The market is still in a rebalancing phase," Kelvin Wickham, the managing director of Fonterra GlobalTrade, said.

"Right now our customers are attempting to predict exactly when decreasing supply or increasing consumer demand will result in an inevitable firming of prices."

The comments echo those of a report last week from analysts at Rabobank who warned that consumer demand in most countries remains "very weak" and that prices would be even lower were it not for strong buying by Chinese importers and by US and EU governments.

including all contracts, prices at Fonterra's latest auction fell by 3% from June to an average of $1,829 a tonne.

Prices neared $5,000 a tonne in late 2007, amid the commodities boom.