Whole Milk Powder Auction Prices Rise to Seven-Month High. Fonterra Says

Whole-milk powder prices rose to the highest level in more than seven months as buyers sought to ensure supply amid expectations that prices will increase further as drought in New Zealand curbs production.

Powder for March delivery gained 1.5 percent to an average $3,701 a metric ton, the highest for a near-term contract since June 1, according to a trade-weighted price index calculated by Fonterra Cooperative Group Ltd., the world’s largest dairy exporter. The company holds its GlobalDairyTrade auctions every two weeks.

Prices rose for a fourth straight auction after New Zealand declared medium-level droughts in Northland and in Waikato province, the nation’s biggest milk-producing region. Fonterra reduced by 1 percent its forecast supply of whole-milk powder for auction.

“They’re prepared to pay a premium for it now,” James Shortall, a rural economist at ASB Bank Ltd. in Auckland, said today. “That might indicate we’ll see higher prices later in the year and buyers just really want to get their hands on the product to ensure supply.”

On Dec. 10, Fonterra, which accounts for about 40 percent of the global trade in butter, milk powder and cheese, raised its forecast payment to farmers by 4.5 percent, citing higher international prices.

Fonterra sells whole and skim-milk powder and dried milk fat at Internet-based auctions. It offers one-month contracts with delivery starting two months after the sale, and two three- month contracts for delivery starting three and six months later.

Production ‘Uncertain’

Whole-milk powder for delivery from April through June fell 0.6 percent, Fonterra said. Powder for shipment from July through September increased 0.3 percent. Across all contracts prices gained 0.5 percent.

“There was a good chance we were going to have good production increases but now that looks fairly uncertain given the dry weather that we saw in November and December,” Shortall, said. “If the rain that we’re getting right now isn’t enough then we may see production hurt further.”

The winning first-contract price for regular New Zealand whole-milk powder, the reference point for NZX Ltd.’s futures contract, rose to $3,675. The January futures contract settled yesterday at $3,725.

To contact the reporter for this story: Phoebe Sedgman in Wellington at psedgman2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

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