Fonterra online auction jumps 24% on firmer demand

Wednesday 2nd September 2009

The price of milk powder jumped more than 24% in Fonterra Cooperative Group's online auction as demand for dairy products continues to recover from its lows in February.

The average price of milk powder jumped 24% to US$2,858 per metric ton, according to the globaDairyTrade website, up from US$2,301 last month. The price is the highest since October last year and has climbed 55% in the past two months.

"We saw an extraordinary increase, and it's significant coming on the back of last month" when the price climbed 26%, said Kevin Wilson, rural economist at ANZ National Bank.

"We'll have to wait until February/March when we're three-quarters through the season before we get closer to the big final result - it's a long way in relative business terms before July 31" when the season ends, he said.

Fonterra, the world's largest exporter of dairy products, announced an opening forecast payout to farmers for the 2010 season of $4.55 per kilogram of milk solids, down 13% from the previous season's $5.20 per kg.

The company blamed the strong kiwi dollar, which climbed to an 11-month high from its sub-50 US cents low in March, for its gloomy outlook.

"As a rule of thumb, there's a change of seven to 10 cents a kilogram at the farm-gate for every one cent change on the exchange rate," Wilson said. Still, "it would take a massive increase in the dollar to offset a 25% increase in a commodity price."

The New Zealand dollar climbed to 67.48 US cents from 67.29 cents before the sale result. Fonterra will introduce anhydrous milk fat, a dense fatty product similar to butter, to the online platform in its November auction. The cooperative plans to offer an expanded range of products through the globalDairyTrade portal.

Exports of New Zealand milk powder, butter and cheese fell 2% to $556 million in July from a year earlier, according to government figures. Dairy products account for some 21% of New Zealand's annual $42.8 billion worth of exports.

Businesswire.co.nz

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