Milk price recovery seen in 2010

Head dairy sector analyst for NZX Agrifax, Susan Kilsby, says a rise in consumer demand for dairy products in developing and developed nations had pushed dairy commodity prices to unprecedented levels by early last year.

Kilsby said since then, a host of factors had contributed to the fall in milk prices, none of which were related to Fonterra's global DairyTrade milk auction system.

An NZX Agrifax and Dairy Week Special Report out today attributed the fall in milk powder prices to a variety of factors, including:

* Adjustment of ingredient buyer purchasing due to high prices and short-term credit restrictions.

* World economic slowdown which has crunched the middle class and emerging markets (big dairy protein markets) particularly hard.

* Decrease in demand from key import markets such as Asia, Russia and Venezuela.

* Substantial decline in consumer demand for dairy commodities.

* Recommencement of European Union and United States government intervention policies.

"Prices will come back, but not until demand returns. In the current tough economic climate, combined with the reintroduction of subsidies, it could be well into 2010 before prices rebound," Kilsby said.

Fonterra is expected to cut its milk payout forecast tomorrow, which is currently at $6 per kilogram of milksolids, down from initial projections of $7/kg and well below last year's record payout of $7.90/kg.

Just after Christmas, NZX Agrifax said it expected the Fonterra milk payout to fall as low as $5.15 a kilogram of milksolids for the current season.

World dairy product prices have slumped about 40 percent this year, only partly offset by a much lower kiwi dollar.

- © Fairfax NZ News