December 10, 2009
Global dairy prices take an upswing
World dairy commodity prices may have peaked after a sustained recovery through the second half of 2009, as indicated by results of released last week.
The average price paid for whole milk powder (WMP) rose 3.6%, which indicates a flattening out after price rises totalling 95% since July. Anhydrous milk fat (AMF) registered average prices which were down slightly on the recent high.
Fonterra executive Paul Grave commented that the fragile economic outlook meant that sustained recovery was dependent on strong consumer demand.
"While the outlook remains positive, we expect more volatility as a result of supply and demand responses to the large price increases since July," Grave said.
The world price of WMP is around US$3500/tonne, with some sales last week up to US$3760.
While nearly double the US$1,800 level earlier this year, it is still US$1,000 below the heights reached during 2007-08. However the current price is 60% above the long-term world price of US$2,200 before the commodities boom and bust.
According to reports, Fonterra has warned its farmers that increased volatility in world prices is now a dominating feature of milk payouts. Its increase in the forecast of 95 cents/kg MS on November 9 did not reflect the full value of the rising world prices over the past six months.
Fonterra chief financial officer Jonathan Mason said directors had been conservative in lifting the forecast by 19%.
NZX Agrifax, in its November Dairy Report, has indicated that Fonterra's safety margin is around 30 cents/kg.
"Our US$6.35 prediction takes into account current sentiment that dairy commodities are very close to the peak of the upward trend and in the case of AMF may have already hit its peak," NZX Agrifax analyst Philip van Polanen said.
"However we still believe that demand and prices will remain relatively buoyant and stabilise around current levels, at least until the start of second quarter 2010, when the EU and US presence will be felt on the spot market."
