Milk price up again

The trade weighted index went up by 5.9% in this morning’s globalDairy Trade auction.

The price paid for anhydrous milk fat increased 1.1%; skim milk power went up 2.3% and the price of whole milk powder increased 9.6%.

This puts the TWI well above the long term average and is a little bit of good news for the New Zealand economy.

Welcome recovery in milk prices at acution

The first of Fonterra’s globalDairy Trade twice-monthly auctions resulted in a welcome recovery in price.

Anhydrous Milk Fat went up 9.5%, Butter Milk Powder was up 10.6%, the price for Skim Milk Powder increased 15.8%, Whole Milk Powder increased by 18.8% and all products on a trade-weighted basis went up 16.9%.

Although prices in the last three auctions were still above the long term average they had dropped which was concerning.

Fonterra’s recent decision to hold the forecast payout for the season at $6.90 to $7.10 was based on confidence prices would firm. This morning’s auction provides welcome confirmation of that.

Milk auction price down again

Prices for skim and whole milk powder and anhydrous milk fat all dropped at last night’s globalDairyTrade auction.

The gDT-TWI index was down 8.3%, skim milk powder dropped 8.9%, whole milk powder was down 7.7% and the price for  AMF fell 7.6%.

An email to shareholders from Fonterra chair Sir Henry Van der Heyden noted the relatively high value of the New Zealand dollar but said the current season’s forecast payout still remained in the $6.90 to $7.10 range.

World milk prices have been volatile, but there’s nothing new in that. Dr Jon Hauser at X-Cheque has graphed milk prices in Australia, France, the UK & USA since 1995 and it looks like coloured spaghetti. (New Zealand prices aren’t included but he says they’re similar to Australian ones).

For me the most interesting data is that of the USA. A regular cycle of volatility has persisted for 15 years.  The peaks are about 3 years apart with a fall to a roughly similar level in between.  There is no doubt that the supply / demand balance in the US is the principle driver of this cycle. In a perverse way the market behaviour is comforting. It is to some extent predictable and it would be more of a worry if there were prolonged periods at the low points.

Australia and New Zealand look like they are trending towards the US cycle. In the short term that will be a positive as it will mean a lift in the long term average price. In the longer term farmers will need to be very careful to avoid getting over excited about the periods of peak pricing. Their businesses need to be designed to withstand the troughs in price. The major risk in this regard is overpriced land and excessive debt.

Our bank is holding a series of meetings for clients at which they give a similar message.

There may be a glimmer of hope for New Zealand dairy farmers though, the price of grain in the UK is very high (close to £140/t). That will increase input prices for dairy farmers there which ought to make it easier for us to compete with them.

globalDairy Trade price up slightly

The average price for whole milk in Fonterra’s monthly globablDairy Trade auction increased .8% to $3,281 per tonne.

The anhydrous milk fat (AMF) price was down 5.4% to US$3,959 a tonne.

Skim milk powder (SMP), which was included for the first time, sold for $US2,927.

Fonterra chair Sir Henry Van der Heyden said adding SMP is in line with the company’s plans to offer a wider range of products on-line and provide a transparent reference price.

Oceania Dairy gets resource consent

Environment Canterbury and Waimate District Council have approved Oceania Dairy’s resource consent application for a dairy processing plant at Glenavy.

The plant plans to process approximately 220 million litres of milk and produce around 32,000 tonnes of milk powder a year. It is expected to be operational for the start of the 2011/2012 season.

It’s a $95 million development and the company is now concentrating on its $74.75-million capital raising.

Farmers have the option of being shareholders and suppliers or just suppliers. The company is also seeking investment from non-farmers.

Farmers who supply Fonterra have to own shares in the company. With Oceania farmers could supply the company without having to make a capital investment. That could be attractive to people starting in the industry or those already in dairying who want to lower their debt levels.

However, this is a new company and farmers will have to weigh up whether or not they can get a return from a company without a track record which would be close to or better than that from Fonterra.

Only suppliers can own Fonterra shares. Oceania offers an opportunity to invest in dairying for non-farmers but no investment is risk free and only time will tell if this company can succeed in export markets.

Most forecasters are expecting stability or a slight reduction in milk prices in the short to medium term. But most also recognise that the world is short of food and any company from New Zealand selling milk does so with the assistance of our reputation for high standards of food safety.

A wee drop in milk auction price

Average paid for Whole Milk Powder in last night’s globalDairy Trade auction was 1.6% lower than last month.

That’s the second fall in a row but is no cause for alarm.

The sharp rise in price towards the end of last year wasn’t seen as sustainable so this wee drop is just an expected correction.

Milk price corrects in auction

The average  price for whole milk powder (WMP) went down 7% to US$3,309 per tonne in Fonterra’s first globalDairy Trade auction for the year.

That wasn’t unexpected after sharp increases in the past few months. It’s still above the long term average and the decrease will be regarded as a correction rather than anything to worry about.

Fonterra chair Sir Henry Van der Heyden said in a newsletter to shareholders that the movements are in line with the market coming more into balance.

While the price for  WMP was  down  the average price for Anhydrous Milk Fat (AMF) was up 4% to US$4,539 per tonne.