Dairy Sector: Latest Fonterra auction result bodes well
May 17th, 2010
A slight dip in the price of milk powder in Fonterra’s online auction this month is being cheered, because it means the previous month’s surge is practically holding. The co-operative will complete a formal review of its milk payment at the end of this month, having signaled a rise to $6.10kg. Paul Grave, globalDairyTrade manager says the latest sale is “very positive” as it means prices have consolidated at a higher level.
Fonterra chairman Henry van der Heyden says dairy is in a “sweet spot” with increasing demand across Asia, China, the Middle East and Latin America. Still, he warns farmers to prepare for price volatility, which has increased 10-fold since 2006. With the reduction in US and EU Govt support, inventories have shrunk and global markets had found a more economic level. Van der Heyden predicts global dairy consumption will grow 2% by the end of 2010, while supply remains tight, helping to underpin prices.
Whole milk powder at $US3,932 a tonne is about double the lows it plumbed last year and tallies with ANZ Commodity Price Index dairy figures, which have printed at record levels. In the milk powder auction, the furthest-away contract, for November to January delivery rose, while the two closer contracts fell, suggesting buyers are still concerned about a supply squeeze this year. Khoon Goh, ANZ Bank’s senior markets economist says average prices at current levels “suggest fairly decent milk prices for the next season. Security of supply is paramount for some firms out there, and that will support fairly good prices.”
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