November 6, 2006

Dairy prices to rise on Australian drought

Global dairy prices might rise, mirroring recent gains in wheat futures, on speculation Australia's worst drought would cut supply amid a looming El Nino weather event.

Wheat in Chicago has rallied 25 percent since Australia cut its harvest estimate in September.

Farm production in Australia might fall 35 percent, or US$4.8 billion, in the year ending June 30, according to the government forecaster. The last El Nino caused drought that slowed Australia's economy by 1 percentage point and cut farm exports by 27 percent.

Meanwhile, there seems no respite to Australia from the drought as the country is not likely to receive drought-breaking rain until next year, said Canberra-based National Water Commission in a report.

Benchmark cattle prices in Australia, the world's second-largest beef exporter, might extend this year's slump, reported Rabobank. Prices have fallen as higher feed prices deter ranchers from keeping livestock amid drought.

The number of cattle sold in auctions in eastern Australia in October was more than 30 percent higher than a year earlier, said Meat and Livestock Australia, Nov 3.

Milk output in Australia could fall as much as 15 percent, said Rob Poole, policy director with Australian Dairy Farmers. This would reduce supplies for manufacturers such as Fonterra Coooperative.