Big gain in dairy product prices

Dairy product prices posted the biggest gain in five months in this week's GlobalDairyTrade auction as international dairy prices remain very high.

After a trend towards lower prices at the previous few auctions, the headline price index increased 3.9% while prices were higher across almost all products on offer.

Rennet casein lifted 18.9%, lactose was up 6.1%, milk protein concentrate up 5.9%, skim milk powder up 5.6%, butter milk powder up 4.6% and butter up 4.5%.

The apparent strength in demand given such high prices and strong production growth in New Zealand was impressive, Westpac senior economist Anne Boniface said.

Westpac had nudged up its forecast of the 2013-14 milk price from $8.30 to $8.40kg ms, while an update on Fonterra's own forecast (currently at $8.30) was expected next week.

Westpac's forecast for 2014 and beyond relied on dairy prices falling next year, due to the expectation that global supply would increase in response to the exceptionally high prices on offer.

The New Zealand dairy season had started strongly, with nationwide production up 7.2% in the four months to September. Growth had been led by the increased production in the South Island.

However, over the back end of the season, that was expected to switch as North Island areas hit particularly hard by last summer's drought outperformed relative to last year.

Even if production dropped back to 2012 levels over the second half of the season, production would still be on course to be up more than 8%, Ms Boniface said.

Australian dairy farmers had not had such a strong start to the season, with production down 4% over the four months to October.

European dairy production had risen sharply over the past few months, although volumes were near seasonal lows, while US production had been consistently running ahead of last year's levels in recent months.

The ANZ commodity price index eased 0.4% in November, the first decline in five months, although it was relatively minor.

The price of aluminium recorded the largest fall, dropping 4% to a four-year low. Whole milk powder prices eased 3%, the international price of butter declined 2% and casein eased 0.5%, while skim milk powder prices lifted 3% and cheese increased 2%.

Meanwhile, resource consent applications have been lodged for a new large-scale infant formula spray drying plant at Synlait Milk's Dunsandel site in Mid-Canterbury.

The plant is part of the company's growth initiatives which will add lactoferrin production, blending and packaging of infant formula products and a 40% increase in production capacity.

The lactoferrin plant, which is under construction, is on target with production expected to begin in February.

A 22,500sq m capacity drystore is under construction and expected to be commissioned at the end of March, and a blending and canning facility is expected to be commissioned ahead of schedule in June.

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