Fonterra online auction extends gains for third straight month

Wednesday 7th October 2009

The price of milk powder extended its gains for the third straight month in Fonterra Cooperative Group's online auction as demand for dairy products consolidates after crumbling earlier this year.

The average price of milk powder gained 5.7% to US$3,022 per metric ton according to the globalDairyTrade website. That's the first time it's been above US$3,000 in 13 months and has surged 65% from its low in July.

With the global recovery setting in, "users of milk powder are restocking and replacing their depleted stockpiles as they look to the future," said Doug Steel, agribusiness economist at Westpac Banking Corp.

"It's more good news that there's demand for our products and people are buying it at higher prices."

Last month, Fonterra, the world's largest exporter of dairy products, boosted its forecast pay-out to farmers this season to $5.10 per kilogram of milk solids from $4.55 per kg earlier in the year.

Resurgent dairy prices have underpinned the rally in the price of raw materials produced in New Zealand, with the ANZ Bank's monthly Commodity Price Index climbing 20% from its low in February.

Still, gains in commodity prices have been offset by demand for the kiwi dollar, which has surged more than 45% from its sub-50 US cents low in March.

The kiwi was little changed at 73.28 cents from 73.22 cents before the results were announced. New Zealand's dairy industry is well-placed to take advantage of growing demand out of Asia, and Steel is optimistic about the long-term stability of the sector.

"For once New Zealand is in the right place geographically," he said. "Demand in emerging markets will keep food, and dairy in particular, in reasonable shape for many decades."

Exports of New Zealand milk powder, butter and cheese tumbled 25% to $359 million in August from a year earlier, according to government figures. Dairy products account for some 21% of New Zealand's annual $41.9 billion worth of exports.

Businesswire.co.nz

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