Fonterra auction demand strong

Last updated 13:51 04/12/2013

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Dairy farmers can expect their payout from Fonterra to reach a record high of $8.40 per kilo of milksolids on the back of strong demand for New Zealand dairy products, Westpac says.

The GlobalDairyTrade's trade-weighted price index rose 3.9 per cent overnight compared with the last sale.

The average winning price was up to US$4973 (NZ$6029) a tonne from US$4805 a tonne at the last auction two weeks ago.

Maximum supply, the measure of how much product was for sale, dropped to 52,697 tonnes from 54,416t, with a total of 51,944t sold.

Westpac senior economist Anne Boniface said the apparent strength in demand given such high prices and strong production growth in New Zealand had been impressive.

Westpac had "nudged up" its milk-price forecast for the season to a record high of $8.40 per kilogram of milksolids, from its current high of $8.30, Boniface said.

She expected Fonterra to give an update on its payout forecast next week.

Fonterra bumped its payout forecast up to $8.30 in September, citing strong international dairy prices, particularly for whole milk powder driven by demand from Asia, and especially China.

However, prices were likely to fall next year as global dairy supply increased in response to the "exceptionally high" prices on offer, Boniface said.

Nationally production was on track to increase by more than 8 per cent for the year, she said.

However, European dairy production had risen sharply during the past few months.

US production had also been running ahead of last year's levels.

Milk production in the top 23 US states was up 1.2 per cent in October compared to the same month last year, she said.

The number of dairy cattle in the US was also up on last year, with a lift in milk product per cow meaning higher margins, Boniface said.

These factors meant US production was likely to increase further next year, she said.

OM Financial senior foreign exchange and derivatives adviser Stuart Ive said while last night's lift in dairy prices was not necessarily the start of a trend, price spikes were expected to continue.

"The flow-on effects for the New Zealand economy are only good, really," he said.

Higher prices were good news for farmers who could see the rises feed back into payouts, Ive said.

In the latest auction, eight of the nine product categories rose.

Rennet casein led the gain, up 18.9 per cent, with lactose up 6.1 per cent compared to the last time it was traded.

Whole milk powder, the biggest category by volume, rose 3.4 per cent, just below its peak.
Cheddar was the only product category to decline, down 1.5 per cent.

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In last night's auction 207 bidders took part, with 127 winning bidders, and 831 qualified to bid.

Swedish-Danish dairy co-operative Arla Foods said it would start selling British skimmed milk powder, produced at Westbury Dairies in the United Kingdom, in the GlobalDairyTrade auction from the next event on December 17.

GlobalDairyTrade is owned by Fonterra, with Fonterra products representing 89 per cent of the product sold in the fortnightly auction.

US, Australian, Indian, European and Scandinavian dairy companies also sell their products on the independent platform.

- Fairfax Media

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