Big gains from Russia's troubles

Prices in dairy co-operative Fonterra's online auction bounced back strongly yesterday with the world feeling the effect of a Russian wheat export ban.

The average price of a basket of products increased by 16.9 per cent, having previously fallen 8.3 per cent and 13.7 during the previous two months.

Fonterra globalDairyTrade manager Paul Grave said the result reflected a more positive market over the past month.

A record 151 bidders bought just over US$100 million ($140.7 million) of product in a little over two hours.

"Hopefully that sends a signal about the future tone of the market," Grave said.

"There's always a chance it [the price] will adjust because it is going to be continually volatile but you have to read some sort of positive tone to this."

Prices increased for both short and longer term delivery.

Russia last month banned grain exports for the rest of the year after a severe drought and wildfires destroyed a large part of its wheat crop.

"It's having a ripple effect in that it's going to possibly have a depressing effect on the availability of [dairy] exports from Europe and it's clearly going to have an increase in the cost of production in those parts of the world that rely on grain to feed their dairy herd," Grave said.

Fonterra last month re-affirmed a forecast payout before retentions for 2010/11 of $6.90-$7.10 a kilogram of milksolids, with chairman Sir Henry van der Heyden saying there were signs of a potential strengthening of international prices further into the season. A $7.10 payout based on stable production levels could be worth about $9.1 billion.

Grave said moving to twice a month auctions would provide a lot more visibility.

Fonterra expected to sell 534,000 tonnes of product through the auction during the next year - about 25 per cent of all business.

Fonterra has appointed First NZ Capital-Credit Suisse and Deutsche Bank-Craigs Investment Partners to provide specialist expertise on the next steps of changing the capital structure of the company.

The farmer co-operative has also appointed NZX to help design the trading platform for the Fonterra Shareholders Market.

Chief financial officer Jonathan Mason said: "The details of how Trading Among Farmers will work in practice are still at a preliminary design." Trading was not expected to begin until late in 2011 at the earliest.

FONTERRA AUCTION
* 16.9 per cent jump in average price.
* $140.7 million of sales.
* Record 151 bidders.
* 534,000 tonnes of sales expected in the next year.