Fonterra raised its milk price forecast a record high as data
showed no let-up in China's appetite for dairy imports, with whole milk powder purchases
from top origin New Zealand making a record start to 2014.
Auckland-based Fonterra, the world's top dairy exporter, raised
its forecast for the milk price it will pay to farmers in 2013-14 for a third
time, this time by NZ$0.35 per kilogramme of milk solids to a record NZ$8.65 per
kilogramme of milk solids.
The increase - from a company whose fortunes play a key part
in the performance of the overall New Zealand economy - is worth an extra
NZ$500m to farmers, and fostered a rise in the kiwi dollar to 83.66 US cents,
from 82.85 US cents before the announcement.
And it reflected "continuing strong demand for milk powders
globally", said John Wilson, the Fonterra chairman.
Chinese imports soar
Indeed, customs data released separately showed New Zealand's
exports of whole milk powder to China hitting 124,938 tonnes last month.
Although January is typically a strong month for Chinese
purchases from its top origin, because each calendar year brings a fresh
allocation of imports allowed under a lower tariff, this represented a particularly
strong start, up 62% year on year.
Until 2009, when China's growing prosperity and urbanisation
began a ramp up in dairy buy-ins, the group had never imported more than 91,000
tonnes of milk powder from all sources in a full calendar year.
However, its appetite is also being spurred by setbacks to
domestic milk output, both from poor weather and a spate of closures of smaller
producers, who are slaughtering cattle to exploit high beef prices, and in the
face of a government programme to encourage larger enterprises.
of high prices'
Indeed, at National Australia Bank, Vyanne Lai said that "strong
demand for dairy exports, especially in the form of baby formula by China due
to the lack of domestic production" was the "main factor" in keeping world
dairy prices high.
"Global milk production has yet to be able to catch up with
demand, despite strong milk flows stemming from New Zealand," she said.
"Milk production in Australia and California has been
constrained by extreme dry and hot weather, with drought conditions in the
latter unlikely to be broken this winter in the US."
With world dairy prices "trading at historically elevated levels
since March last year, it represents a period of unsurpassed duration of
sustained high prices".
Milk price discount
Nonetheless, Fonterra restated that it could be paying
farmers even more for milk were it not for the constraints on its capacity to
turn milk into powders rather than into other products, such as casein, for
which markets have not proved so strong.
"Today's forecast [is] NZ$0.70 lower than the $9.35 milk
price derived under the Milk Price Manual," Mr Wilson said.