Milk powder prices ease again at auction

Fonterra's later-dated contract has fallen US$429 a tonne since December. Photo / Sarah Ivey

Milk powder prices fell for a second month as production in Europe and the US increased and concerns eased that drought would reduce global supplies, Fonterra said yesterday.

Whole milk powder for April delivery declined 2.5 per cent to US$3200 a tonne, according to data on the company's Global Dairy Trade website. Prices fell for the first time in six months in January, having reached a 16-month high in December. The April contract is up 74 per cent from a year ago.

Fonterra is the world's biggest dairy exporter, accounting for about 40 per cent of the global trade in butter, milk powder and cheese. Powder prices have climbed from a five-year low in July as food makers increased inventories as the global economic outlook improved.

"We've just been through a period of supply restocking which appears to have come to an end," Global Dairy Trade manager Paul Grave said.

The European and US "season is just about to come into full swing. Potentially there will be more product available into the marketplace."

Fonterra's internet-based auctions offer a one-month contract with delivery starting two months after the sale, and two three-month contracts with delivery starting three and six months later.

Milk powder for delivery from May through July rose 1.6 per cent to US$3308 a tonne, Fonterra said. Powder for shipment from August through October dropped 6.7 per cent to US$3287 a tonne.

Fonterra's later-dated contract has fallen US$429 a tonne since December. The decline probably reflected improving confidence in future production and greater clarity around output levels in New Zealand and Australia, Grave said.

"There was a bit of a premium previously," he said. "There were some supply concerns which probably have eased a little now, although Australian supply is down a little and some parts of New Zealand are still in drought."

Dry weather will cut Fonterra's output about 0.8 per cent in the year ending May 31, the company said last month. Australian production in the five months through November was 5.4 per cent less than a year earlier, Dairy Australia said on January 21.

Prices will likely "bounce around" in coming months, he said.

"The key is consumer demand, that's the unknown factor," Grave said. "There are positive signs out there, but it relies on sustained economic growth to be maintained. And that's the key really."

- BLOOMBERG