Dairy prices fuelled by global appetite

Global dairy prices rose a further 3.9% at yesterday's internet auction, fuelled by a seemingly insatiable international appetite for dairy products and disrupted supplies.

The increase in Fonterra's global dairy trade follows a 7.2% rise two weeks earlier and concerns about lower than expected production in New Zealand and Australia, due to unfavourable weather conditions.

The average price over all products offered was $NZ6053 per tonne up 3.9% on a trade-weighted index on the previous sale, with the average price for anhydrous milk fat (AMF) falling 2.4%, skim milk powder (SMP) rising 0.7% and whole milk powder (WMP) 7.9%.

Fonterra reported the average price for contracts through until October for AMF was $8432, SMP $5197 and WMP $5760, still well short of the $6666 peak reached in 2007.

The result confirms comments this week by Fonterra chief executive Andrew Ferrier that WMP prices in particular were expected to stay at least 50% above their historical averages without burning off demand.

Mr Ferrier tempered that optimism by warning that international dairy markets remained volatile, but in December Fonterra announced an increase to its milk price for this season of 30c a kg of milk solids, taking it to a forecast $6.90 a kg of milk solids.

The forecast profit range Fonterra expects to earn was unchanged at 40c to 50c a share, of which the target dividend range to be paid to shareholders was 25c to 35c a share after retentions.

The fair value price of Fonterra shares was $4.52.


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