Fonterra milk prices edge lower, buyers nervous about the future

Wednesday 2nd June 2010

The price of whole milk powder edged lower in Fonterra Cooperative Group’s monthly online auction, with concerns about the outlook and market volatility trimming demand for the longest contract on offer in the sale.

The average price for whole milk powder fell 3.4% to US$3,790 a tonne, according to the globalDairyTrade website managed by CRI International. That’s still more than double last year’s trough in July, though the surge in prices is easing while production in the Northern Hemisphere is ramping up.

“Supply is the key driver of the market, and short-term supply is the issue” that’s helping maintain prices, said Paul Grave, globalDairyTrade manager. “People are reluctant to be too bullish into the future.”

Last month, the world’s biggest dairy exporter lifted its forecast pay-out for next season to $6.60 per kilogram of milk solids (kgMS), warning market volatility could erode the surge in dairy prices over the past year.

Chairman Henry van der Heyden said if prices and the exchange rate stayed at today’s level, the pay-out could be in excess of $8.00 per kgMS. Grave said Fonterra is moving about 550,000 tonnes of product on the globalDairyTrade platform, and it sold about US$138 million worth of powder in today’s auction.

Kevin Wilson, rural economist at ANZ New Zealand said “a small percentage shift between months given the amount of volatility in the markets is a pretty good result,” with demand still reasonable. Still, with European and American farmers ramping up production and New Zealand, prices will probably start to come down.

“There has to be some retrenchment from current levels, and Fonterra’s forecast pay-out reflects this,” Wilson said. Given the resilience of dairy prices, “consumer prices might have to go up considerably at some point, and we know what that does to demand.”

On a trade-weighted basis, dairy prices dropped 3.5%, with a 6.2% decline in skim milk to US$3,462 a tonne leading the index lower.

ANZ’s Wilson said there’s about 320,000 tonnes of skim milk powder sitting in European stores and it’s only a matter of time before that comes on to the market. The average price of anhydrous milk fat rose 5.9% to US$5,324 a tonne, its highest level since the product started trading on the gDT website in November.

New Zealand exports of milk powder, butter and cheese surged 29% to $902 million in April from the same month a year earlier, though casein and caseinates slumped 23% to $51 million over the same period. Dairy products account for some 23% of New Zealand’s $39.9 billion worth of exports.

Businesswire.co.nz

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