Fonterra, the world's biggest dairy exporter, estimated that milk prices may jump more than 20% this year, following a squeeze in supplies caused by robust demand from developing nations.

 

The New Zealand dairy co-operative pegged its first forecast for its milk payouts in 2010-11 at NZD6.90-7.10 (US$4.61-$4.74) per kilogramme of milk solids, a rise of some 7% on-year.

 

"If international dairy prices and foreign exchange rates were to hold to current levels for most of the coming year, it is possible that the payout could be well over NZD8.00 (US$5.34)," Sir Henry van der Heyden, the Fonterra chairman, said.

 

"We could be looking at a significant improvement during the course of the year."

 

The group's assessment was based on a favourable outlook for dairy prices, given strong growth in dairy consumption in the Middle East, North Africa and Asia in particular China, said CEO Andrew Ferrier.

 

"Meanwhile, global supply remains constrained, with production down because of adverse weather in Europe and Australia, while tight credit conditions are constraining dairy growth in the US," he added.

 

At Fonterra latest monthly auction, three weeks ago, whole milk powder sold for an average of US$3,932 a tonne, 83% higher than a year before.

 

The company's 2010-11 forecast was welcomed by farmers, who have suffered dry weather as well as their own credit constraints.

 

Fonterra farmers co-operative left its estimate for 2009-10 payments unchanged at NZ$6.50-6.60 (US$4.34-$4.40) per kilogramme of milk solids.