Fonterra gave weight to ideas that New Zealand's milk
production is falling sharply in the closing months of 2012-13, by warning of a
fall-off in its own collections – as it forecast higher prices ahead.
The Auckland-based group, the world's biggest dairy
exporter, said that dry weather, particularly in North Island, in mid-December
and January had "resulted in a slowdown in milk supply growth".
Theo Spierings, the Fonterra chief executive, said: "We had a strong start to the season and milk
collection volumes were running 6% ahead of last season on a year-to-date
"However, the dry
conditions mean we are currently forecasting total milk collection volumes to
finish approximately 1% ahead for the full season."
The comments represent some of the most firm evidence yet of
of a fall-off in New Zealand milk production – speculation which has helped
lift dairy prices at Fonterra's GlobalDairyTrade auctions to a 19-month high.
On Monday, Commonwealth Bank of Australia noted that "New
Zealand milk deliveries in the first half of 2013 are at risk because of dry
conditions", with North Island receiving less than half normal January rainfall.
"The sharp rise in Fonterra auction prices over the past
month, particularly for deferred deliveries, is indicative of expected
tightness in future supplies."
Fonterra itself forecast that prices, up 5% in February at GlobalDairyTrade,
had further still to rise.
"Global dairy prices are likely to move higher in the second
half of the season [2012-13]," the co-operative said.
However, Fonterra declined to raise, from NZ$5.50 per
kilogramme of milk solids, its estimate for the milk price it will pay its
farmers over 2012-13, a forecast reflecting the strength of the New Zealand
"If there was a further significant strengthening of the New
Zealand dollar against the US dollar then this may adversely impact on the
forecast farmgate milk price," the group said.
Milk production data from industry group Dcanz for the five
seven months of 2012-13, to the end of December, show output running 7% higher
than a year before, at 12.4m tonnes.
New Zealand's milk output has not shown a year-on-year
decline since December 2010, boosted by industry expansion, in part at the expense
of sheep farms, and by – until recently - largely benign weather conditions.