18 Feb 2015

World dairy prices close to Fonterra forecast

1:40 pm on 18 February 2015

International dairy prices are edging closer to the level needed to support Fonterra's current forecast milk payment to farmers.

The dairy price index has risen by 10.1 percent in the overnight global auction, with an average price of $US3366 per metric tonne.

Of most significance was the whole milk powder price, which has the biggest influence on setting Fonterra's milk payout. It rose by 13.7 percent, on top of a 19 percent increase at the previous GDT auction a fortnight ago

The whole milk powder price rise was $US398, taking it to $US3272.

It is the fifth consecutive rise in the index.

But primary industry analyst at AgriHQ, Susan Kilsby, said prices need to climb by a further 10 percent before the end of the season in May, to underpin the current payout forecast of $4.70 per kilo of milk solids.

"We expect prices will need to go up by another 10 percent before the end of the season. The NZX Futures market is currently pricing for that to happen, so as long as prices do continue to track upwards, then that $4.70 is achievable.

"The only thing we do sometimes see, when there are such large gains like we've had recently, is that the market will steady and it is possible that it might ease back. There is still going to be a lot of milk available in the second quarter of this year, as seasonal increases in production happen, both in Europe and the US, so that will really test how much demand there is in the market at that point."

Prices for other products, such as butter, skim milk powder and cheddar cheese, also rose.

However, the volume traded is still falling, dropping this time by just over 5043 tonnes to 22,957 tonnes.

Prices for all products improved in last night's auction. Cheddar cheese made the biggest gain - at 16.8 percent and skim milk powder lifted by 5.7 percent.

Fonterra will review the payout forecast at its board meeting next week.

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