Milkshed blues a dampener for Fonterra

The bad December weather ruined holidays and dampened retail sales. Now Fonterra confirms it wasn't even good for the farmers.

Fonterra said yesterday that it had collected 5 per cent less milk than forecast halfway through the season because of unusually poor weather.

The drop in collection meant it would be manufacturing up to 75,000 tonnes less dairy products this season, chief operating officer Jay Waldvogel said.

"That is a significant shortfall given Fonterra's share of globally traded dairy products and will add to the already-tight international supply situation," he said.

Fonterra, New Zealand's largest company, controls around one-third of the world's freely tradeable dairy produce.

"We are effectively sold-up for the current production season and we do not anticipate any dramatic increases in global supply until the new Oceania production season starts in September 2005," Waldvogel said.

Fonterra had taken the production drop into account in December when in it raised its forecast milk payout for the coming season to NZ$4.30 per kg of milksolids.

If the supply shortfall has any up side it is that it may help maintain global commodity prices for dairy near the record highs they reached last year.

Massey University professor of agribusiness Bill Bailey said this week that while world non-fat dry milk powder prices were thought to be weakening - with powder prices down 2 per cent to 3 per cent last week - the demand for dairy products for emergency feeding programmes in tsunami-ravaged areas of Asia, could help to keep a floor under current prices.

Earlier he said Oceania prices had held up, possibly related to tighter supplies in this part of the world because of the bad weather.

Although the United States Government had forecast New Zealand dairy production to increase 2.5 per cent from last year's level, New Zealand production would actually decline from last year's level, mostly because of the difficult weather conditions, Bailey said.

In early December, Fonterra declined to forecast this season's milkflows, saying that the season had got off to a slow start and it was too early to predict how it would finish.

But trade figures released later that month showed the volume of milk powder exports was down more than 28 per cent in October, against the same period in the previous year.

Fonterra said that was a seasonal fluctuation, as was a drop of 43 per cent in the value of cheddar cheese exports.

A spokesman said it was early days in the milk production season, and low shipping volumes were "to be expected".

Fonterra collected 14 billion litres in the year to May 2004, compared with 13.4 billion in 2003 and 13.1 billion in 2002.

- NZPA, STAFF REPORTERS