Fonterra milk prices jump 26pc in online auction

Milk powder prices have jumped nearly 26 per cent in Fonterra's latest online auction as the world dairy market continues to show extreme volatility.

The New Zealand dollar jumped to a 10-month high after the results were published. The average price of milk powder surged to US$2,301 per metric ton, according to results on the global Dairy Trade website, up from US$1,829 last month. The price is the highest recorded on the auction site since November, still prices are down some 47 per cent since Fonterra opened the platform in July last year.

"It's very encouraging to see the lift, but the market was very short on inventories and there's still instability," said Kevin Wilson, rural economist at ANZ National Bank.

"We expected to see a rise, but nothing this big." Fonterra, the world's largest exporter of dairy products, reiterated its opening forecast payout to farmers for the 2010 season of NZ$4.55 per kilogram of milk solids, a 13 per cent decline from the previous season's NZ$5.20 per kg. The company blamed the resilient kiwi dollar, which climbed around 37 per cent from its sub-50 US cent low in March, for its pessimistic outlook.

The kiwi dollar climbed to 67.32 US cents from 66.51 cents before the sale results and from 66.66 cents late yesterday. The auction was the first time the cooperative sold Australian milk powder, and is part of the Fonterra's bid to expand the range of products sold on the platform.

"This will bring the same market price transparency for Australian product that global DairyTrade trading events have established for New Zealand product," said Nigel Kezemko, commercial and strategy director for Fonterra Trade and Operations.

Exports of New Zealand milk powder, butter and cheese fell 11 per cent to NZ$552 million in June from a year earlier, according to government figures. Dairy products account for some 21 per cent of New Zealand's annual NZ$43 billion worth of exports.

The price of raw materials produced in New Zealand has lagged behind commodity price gains in other nations, as the ANZ National Bank index, a measure of the country's leading export goods, climbed 7.8 per cent from its lows in February, compared to a 34 per cent gain on the Reuters Jefferies CRB index, a measure of 19 commodities including oil and gold.

-BUSINESSWIRE