Fonterra auction reverses downward trend

File photo / Sarah Ivey

International dairy prices bounced back yesterday, rising for the first time in more than four months in Fonterra's online auction.

The average price for a basket of products in the latest online auction rose 1.7 per cent - the first increase since the June 1 event.

The average winning price in the auction was US$3540 a tonne - 26.6 per cent lower than at March 1.

BNZ economist Doug Steel said there were a few signs that the dairy market was stabilising.

"Good to see the first rise in a few months but I wouldn't get too carried away with it because it as much reflects a lower US dollar rather than necessarily a pick up in the real value of the product itself," Steel said.

When converted into New Zealand dollar terms the latest auction prices had eased back a little, although they had been on a positive trend since about early August, he said.

"Some signs of stability is probably the best summary of it," Steel said. "The idea that we've got quite a bit more milk coming on globally and prices have been holding up suggests that demand is keeping pace and that's all good for going forward in 2012."

Fonterra earlier this month said a good autumn and reasonable winter had resulted in record milk flows.

Fonterra director of New Zealand operations Brent Taylor said: "I guess the current story basically is that we've had a great spring and so we've had an early peak ... we're all hands to the pump to get through this period.

"We're basically at the peak and when we come to November we should be over it and then ideally we'd like a long, lingering, high production but potentially there is this La Nina [weather pattern] out there that may have an impact as we go through the summer."

BNZ's Steel said whole milk powder results were the strongest in the online auction, which is used by Fonterra and DairyAmerica to sell dairy products.

The price of whole milk powder across all contracts was up 5.7 per cent, with skim milk powder up 3 per cent.

"It tends to be more the emerging markets in the base powder products, it could be a sign that that demand is stronger, certainly stronger than the Western world demand," Steel said.

Overall dairy products had weathered the recent global financial storm fairly well.

"The fact that prices are still well above their average over the last 10 years or so [is] testament to that."

The European debt situation was the biggest risk at the moment, Steel said.

"Not only for the dairy market but for the New Zealand economy more generally," he said. "It looks like they're making some progress ... we've been here before only to be disappointed."

Milk production was expected to be up about 5 per cent for the season, Steel said.

Fonterra is forecasting a payout before retentions for 2011/12 of $7.15 to $7.25 a kilogram of milk solids - including a farmgate milk price of $6.75 a kilo and a distributable profit of 40c to 50c a share - which with a 5 per cent rise in production could be worth $10.2 billion.

ON THE BLOCK
* 120 winning bidders.
* 44,253 tonnes sold.
* US$3540 a tonne average winning price.
* 1.7pc rise in average price of a basket of products.