23 Jan 2014

Dairy price rises led by cheese and butter

7:43 pm on 23 January 2014

The price Fonterra pays dairy farmers for their products could rise if upward price pressure on cheese and butter continues.

In the latest global dairy auction, benchmark wholemilk powder prices rose 0.1 percent, skim milk powder fell 0.5 percent, while butter and cheddar each surged more than 10 percent.

Fonterra has two product groups: powders, which have sold at elevated levels at the global auctions, and other products, like cheese and cassein, which have been generating lower returns.

Last month, Fonterra held its forecast Farmgate Milk Price at $8.30 per kilogram of milk solids for this season, but said this could fall if the relative prices of its two product groups continued to diverge.

The co-operative also cut its expected dividend payout for the 2014 financial year to 10 cents from 32 cents, and blamed the cut on the price gap between the products.

ASB economist Chris Tennent-Brown says there appears to be a convergence in product prices, which could be favourable to Fonterra if it continues.

He says it's encouraging that there has been a strong price catch-up in the non milk powder products such as cheddar and casein in the last couple of auctions.

Mr Tennent-Brown says that's encouraging because in December last year Fonterra pointed out that the milk price was effectively stuck because of the capacity constraints of making the lucrative milk powders.

He says now stronger prices are being seen in some of the other products which suggests hope that the mix will be more favourable.