22 Aug 2013

Auction price disguises Fonterra premium drop - Agrimoney

7:03 am on 22 August 2013

An agribusiness news site says the rise in this week's global dairy trade auction disguises the fact Fonterra's losing the premium it once commanded over other countries.

Prices in the twice-monthly global dairy auction rose 2.3% to an average selling price of $US4941 per tonne, offsetting a similar fall in the previous sale.

Skim milk powder prices were down by 0.7% in Wednesday's auction - and that's the product category in the auction in which there's the most competition for Fonterra.

Agrimoney, an international agribusiness specialist news site, says buyers turned to lower-priced alternatives from India's Amul and the United States' DairyAmerica.

Agrimoney reports the premium Fonterra gets for its skim milk powder over DairyAmerica is now 5.7% - down from 13.6% at the last auction.

Before the botulism scare, the premium Fonterra received was 20%.

But a New Zealand market analyst says the reduction in the skim milk premium has more to do with seasonal supply than it does botulism.

NZX Agrifax dairy analyst Susan Kilsby said the same thing happened last year.

She said New Zealand milk volumes start to increase significantly this time of the year, whereas the opposite is happening in the Northern Hemisphere where DairyAmerica operates.

Ms Kilsby says New Zealand has more product on offer, where as the United States has less available.

At this time last year DairyAmerica product was selling on the global dairy trade for more than Fonterra product, so the fact that Fonterra is still receiving a premium is good.

Ms Kilsby said DairyAmerica is increasing the volume it's putting into the global market and becoming a more consistent supplier.

She expects New Zealand's premiums are likely to erode over time as the US gets up to speed and offers the same level of benefits that New Zealand has.