21 Feb 2013

Milk price lifts further since DCD discovery

10:23 am on 21 February 2013

The latest lift in Fonterra's global dairy trade prices appears to show there's been no market backlash from the discovery of the agrichemical DCD in New Zealand milk.

Dairy commodity prices rose by more than 3% in this week's auction and whole milk powder prices by nearly 6% - the largest rise since September.

ANZ bank agri-economist Con Williams says an expected drop in New Zealand milk production because of continuing dry conditions is behind the price lift.

He says it appears to lay to rest concerns of a consumer backlash over traces of DCD found in samples of some dairy products.

The chemical is from nitrification inhibitors used on some farms to reduce nitrogen leaching.

Mr Williams says whole milk powder prices have firmed by 11% since news of DCD broke in mainstream media.

He says that suggests consumers and regulators are comfortable with New Zealand dairy products in the majority of cases.

Weak end to season predicted

Mr Williams is predicting a weaker end to the New Zealand dairy production season as dry conditions across the North Island look set to continue.

He said ys the dry conditions are localised across the North Island - including Waikato, parts of Bay of Plenty and up to Northland - but still represent about 60% of production.

Mr Williams with New Zealand being the largest whole milk powder exporter, buyers are getting in earlier in anticipation of a weaker end to the production season.

He says ANZ is expecting Fonterra to increase its milk price to farmers by another 10 to 20 cents by the season's end.

Its current forecast is $5.50 per kilo of milk solids with dividend payouts on top of that.