Fonterra flagged "strengthening demand" for dairy products
as the sector's biggest exporter raised farmgate milk prices in its native New
Zealand, putting them on track for a 10% rise year on year.
The co-operative lifted by NZ$0.25 per kilogramme of milk
solids to a three-year high of NZ$6.75 per kilogramme of milk solids its
forecast for prices paid to farmers in 2017-18, which started last month.
The increase "reflects the ongoing rebalancing of supply and
demand in global dairy markets" said John Wilson, the Fonterra chairman.
"Global demand for dairy [is] strengthening."
Separately, Fonterra flagged "strong growth" in Latin
American dairy imports, up 13% in the year to March, although noting "some
easing" in expansion of volumes to Asian buyers.
Meanwhile, milk production is "flat to declining" in
Australia, the European Union and New Zealand, three of the top exporters,
although showing 2% growth in the US.
'Low levels of
Theo Spierings, the Fonterra chief executive, said that "increasing
numbers of consumers in our global markets prefer dairy for their everyday
source of nutrition, and that is converting into strong demand particularly in
consumer and foodservice products".
He added that the group's outlook was based on "prudent"
forecast, "given that we are still early in the season".
Fonterra was starting 2017-18 with "very low levels of
inventory", Mr Spierings said, in an announcement which comes two weeks after
the group revealed the withdrawal of 7,200 tonnes of Australian skim milk
powder for sale through its GlobalDairyTrade auctions over the next year.
A recovery in dairy prices overall at GlobaDairyTrade has
actually levelled off this year, with a continued surge in values of fat
products - and notably butter, for which prices have hit record highs – offset
by softness in markets for the likes of skim milk powder.
However, prices of whole milk powder have found renewed life
over the past week, standing at $3,280 a tonne on Thursday in New Zealand's NZX
market for September delivery, a multi-month high.
"Buyers have taken prices up through a sort of 'ceiling' at
about $3,200 a tonne that has been in place since last April," said Tobin Gorey
at Commonwealth Bank of Australia.
"The market seems to have been energised by that break and
added further gains since."
Mr Gorey attributed the gains in part to currency moves, and
appreciation in the euro and the New Zealand dollar – currencies of the two
major dairy exporters – against the dollar.
"Whole milk powder prices in both those currencies have
gained a lot less than they have in US dollar terms," he said.
"But they have still gained so currency cannot be the
"The other part of the explanation is likely to be very high
butter prices dragging the value of milk fat higher."
Australian price rise
Upward pressure on farmgate milk prices has also been
evident in some other markets, including Australia, where top processor Murray
Goulburn last month hiked an initial price outlook of Aus$4.70 per kilogramme
of milk solids to Aus$5.20 after rivals put in higher forecasts.
Bega offered farmers Aus$5.50 per kilogramme of milk solids,
with Fonterra offering Australian producers Aus$5.30 per kilogramme of milk