Stable dairy auction prices good news, says Fonterra

Prices for milk powder on Fonterra's online global auction were up slightly overnight - rising 0.8 per cent or US$25 a tonne from last month's auction.

Paul Grave, Fonterra's "globalDairyTrade" manager, said this was a pleasing result that reflected a relatively stable market over the last four weeks.

"There is still an element of uncertainty as to how supply and demand factors will influence prices over the coming months," said Grave. "Buyers are focused on ensuring their short to medium term supply requirements have been secured."

The word "stable" in any headline was positive, said Grave.

"It is a good headline, if you're a farmer, or involved anywhere in the agribusiness, that is a great headline - because we've gone through a very volatile time, so to have a period of relative stability is a very good thing for the market."

For the first time the auction included skim milk powder sales. The average price for skim milk powder contracts was US$2,927 per tonne.

These first sales through the system "went very well" said Grave, with the result "within the basket of recent sales" seen. There would however, likely be a 'settling in period' where the price of skim milk powder bounced around a little bit, he said.

Last night's auction reflected what hadbeen a relatively stable month in the market, with all price movements within Fonterra's expected range.

"This indicates the market is within reasonable balance at the moment," said Grave. "Farmers will be happy I think to see that there's relative stablity and that prices and trading is occurring in a narrower band. "

When prices rose quickly, consumers reduced consumption. High prices also encouraged other producers to produce more, meaning supply and demand could potentially "get out of synch".

Dairy prices fell 7.6 per cent last month, according to the ANZ Commodity Price Index, after they surged last year.

BNZ economist Doug Steel said it was too early to say whether the gain in whole milk powder this month was indicative of a longer trend, though it did damp some of the downward pressure ahead of the Northern Hemisphere boosting production.

The online trading system was now "a very entrenched part of the way we do business", said Fonterra's Paul Grave.

Forecasts are for just under 20 per cent of Fonterra's domestic production to be traded through the online auction method over the next
12 months.

New Zealand's dairy exports declined in 12 months through to January, with milk powder, butter and cheese sliding 12 per cent to $8.12 billion, while casein and caseinates sank 27 per cent to $751 million.

Dairy products account for about 22 per cent of the country's annual $39.7 billion worth of exports.

The next online auction will be held on April 6, 2010.

NZ HERALD STAFF / BUSINESSWIRE