Wellington, June 3 NZPA - Fonterra says increased uncertainty in international dairy markets has partly driven today's 12 percent slump in the average price of milkpowder at its June online auction.

The average price set last month today fell to $US1886/tonne ($NZ2911/tonne), and prices ranged from $US1795/tonne to $US2065/tonne.

Prices have fallen more than 16 percent for Fonterra milkpowder over the past three weeks.

Today's auction showed prices dropping 7.7 percent in August to $US2002/tonne for whole milkpowder, and even lower demand for longer-term contracts: down 12.4 percent in September-November to $US1894/tonne, and 14.2 percent in December-February to $US1814/tonne.

"International dairy markets will remain weak until consumer demand improves," said Kelvin Wickham, managing director of Fonterra's GlobalTrade arm.

The past two auctions have heavily eroded the only gains so far seen the first year's online sales -- April's 3.5 percent lift in the average selling price for whole milkpowder to $US2235 a tonne, following a 16.6 percent rise in early March.

"We need a sustained pick-up in customer and consumer demand to see any meaningful recovery in prices and that is not occurring as fast as we would like," said Mr Wickham. "There's increased uncertainty in the market because of the recent announcement of US subsidies and talk of European retaliation."

EU export subsidies, re-introduced in January, average $NZ1192/tonne on milkpowder, $NZ2158/tonne on cheese and $NZ3873/tonne on butter have recently been followed by the United States giving US farmers new subsidies under the Dairy Export Incentive Programme (DEIP).

Fonterra is the world's largest dairy exporter, with annual revenues of about $17 billion. Its auctions sell milkpowder on a range of contracts, including a one-month contract with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

The next online auction will be held on July 1.

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