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Fonterra milk prices sink as Northern Hemisphere ramps up production

Wednesday 7th July 2010

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The price of whole milk powder sank in Fonterra’s monthly online auction as the Northern Hemisphere ramped up production amid signs of faltering global economic growth. 

The average price for whole milk powder tumbled 15% to US$3,224 per tonne, according to the globalDairyTrade website managed by CRI International. That’s 76% higher than last year’s trough in July, though about 19% below the peak in April. The gDT-TWI, a measure of pricing across whole milk, skim milk powder and anhydrous milk fat, fell 14% to 1,017.  

“Demand is being affected by concerns about how robust the global economy is – buyers are reluctant to go beyond their known requirements,” said Paul Grave, globalDairyTrade manager.

“There’s product coming in from Europe and we’re selling new season product in New Zealand, so the key driver in the supply/demand equation has become demand.”  

Dairy prices surged over the past year, driving New Zealand’s total export receipts to a record $4.2 billion for the month of May, and helping rebalance the economy toward the tradable sector, a process the central bank says is desirable. 

Jane Turner, economist at ASB, said the decline in dairy prices on the Fonterra platform wasn’t unexpected with the Northern Hemisphere boosting production and Fonterra taking a conservative view in its forecast pay-out. The big unknown is American production, which could rapidly increase in the face of strong prices, she said.  

“Dairy prices were coming off extremely high levels and a sizeable fall was going to happen at some point,” Turner said.  

Fonterra’s Grave said the company is selling 550,000 tonnes, or a quarter of its domestic production, a year through the platform.  

“We sold US$160 million of product to 111 buyers across the globe, so that’s a good outcome” in the latest auction, he said.  Fonterra’s next target for the globalDairyTrade platform is to bring on new suppliers, though Grave said nothing was expected until next year.  

The price of anhydrous milk fat sank 14% to US$4,620 a tonne, and skim milk powder dropped 12% to US$3,067.  

New Zealand exports of milk powder, butter and cheese jumped 13% to $909 million in May from the same month a year earlier, while casein and caseinates dropped 10% to $63 million, according to government figures. Dairy products account for about 23% of New Zealand’s $40.1 billion worth of exports.  

Businesswire.co.nz



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