Dairy prices movement encouraging for Fonterra

Prices lifted 1.4% in this week's GlobalDairyTrade auction with an apparent convergence in product prices being cited as encouraging for Fonterra.

In December, the co-operative left its forecast milk price unchanged at $8.30 due to the disparity between milk powder prices and other products.

Its cheese and casein stream was lagging behind its milk powders stream, where extremely high prices had been recorded, but production was at full capacity.

The mix of price changes in the latest auction was encouraging, with the cheese and casein stream products all posting large gains, casein rising 4.2% after posting a 7.3% gain two weeks ago, ASB economists said.

In contrast, the milk powder stream products were a mixed bag again, with whole milk powder and anhydrous milk fat posting gains of 0.1% and 2.2%, respectively, while skim milk powder dropped 0.5%.

Overall, dairy markets remained tight and prices were well supported. Fonterra's milk powder production constraints had added to the tightness, ASB said.

Westpac senior economist Anne Boniface said strong prices suggested demand from China for dairy products continued to hold up.

''We continue to expect to see dairy prices moderate in 2014 as global supply ramps up but it is starting to look as though this won't happen until closer to the middle of the year,'' Ms Boniface said.

Domestically, production continued to run well ahead of last season, and the comparisons would only get more favourable as the season moved into the period where drought hit production hard in 2013. Nationwide production was 5.5% ahead of last year for the six months to November and she expected it to be up around 8.5% by the end of the season.

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