Buoyant milk market predicted

Last updated 07:51 28/09/2012
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FAIRFAX NZ
Milk powder prices are tipped to rise over the next season.

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A shrinking world milk supply may see international commodity prices leap in the first half of next year, but the spur may come too late to put a smile back on dairy farmers' faces this season, Rabobank says.

Just a day after warnings that a big dip in Fonterra's final 2012 milk payout means tight cashflows for farmers and belt- tightening for the economy, the global agribusiness bank is predicting a return to milk scarcity in the next 12 months, which it says could push up international prices sharply.

A global milk glut in 2012 and the $1 billion impact of the strong New Zealand dollar on Fonterra's annual earnings to July 31 saw the final payout fall this week by $1.52 a kilogram on 2011's final payout, shaving about $183,000 off the average production farmer's annual pay packet.

Senior dairy analyst Hayley Moynihan said the tightening milk supply predicted for the 2013 season was largely the result of low milk prices, extreme feed costs and unfavourable weather in other milk-producing nations.

However, any consequent international price improvement would likely not come until next year, which could be too late to significantly boost Fonterra's 2012-2013 milk payout, currently forecast to be $5.25 per kilogram of milksolids - 13 per cent under the 2012 season's closing payout. Fonterra makes up 90 per cent of the New Zealand dairy industry.

"It may make some difference in the latter stages [of the 2012-2013 season], but will have a bigger impact in the 2013-2014 season," she said.

The price turnaround could be "quite sharp".

World dairy-market eyes are now on the success or otherwise of New Zealand's peak milk production period, or "flush", in October, she said. The shape of the New Zealand flush would determine the direction of the world market before Christmas.

"The key driver will be scarcity.

"But it is not going to hit the markets until after the New Zealand flush and if anything disrupts that flush it could speed up the price [change]."

Moynihan said falling milk output in the United States and Europe had already driven up local wholesale prices in the third quarter. "Assuming a steady rise in demand for imported product, prices will . . . need to rise substantially to achieve the required demand rationing to balance the international market." This would likely send prices towards the higher end of Rabobank's target medium-term trading range of US$3300 ($3992) to US$3800 per tonne for wholemilk powder in Oceania trade in the first half of 2013. Fairfax NZ

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