Fonterra Auction 4.9% Recovery One More Indication of Firm Markets to Year End

Commenting on the results of yesterday’s Fonterra (GDT) auction, which saw the price of the main dairy products for trade to January 2014 increase by a weighted average of 4.9%, IFA National Dairy Commodity Chairman Kevin Kiersey said this was one more indication that the firmness of markets due to low supplies, relatively limited stocks and sustained demand was set to last, possibly to year end.  He said this meant Irish co-ops should be in a comfortable position to hold milk prices of around 38c/l to next spring.

“The recovery in the Fonterra prices over the last two auctions shows buyers now believe that, while stronger milk prices and lower feed costs will encourage greater production in most world dairy production regions, the impact of the last 12 months has affected production and stocks more than expected. Production in April in the seven main dairy production regions of the world was down by over 4%, and stocks have been depleted to meet needs.  Indeed, this analysis is articulated in the most recent Rabobank Dairy Quarterly Report,” Mr Kiersey said.

“Yesterday’s Fonterra price increase was driven mostly by powder trade, with SMP prices up 3.3%, and WMP by 7.7% compared to the previous auction.  The trade weighted price, at US$4828, was 75% above the price level of the same auction last year, with comparable quantities being traded,” he added.

“While most analysts believe global dairy market prices peaked over the spring, they have actually been relatively well sustained since, especially in the EU.  Gross returns of around 43c/l have been available for Irish co-ops for the main commodity combinations for the last few months, and if dairy commodity prices remain firm as we expect, there is no reason why prices at or a little above what Irish co-ops are paying farmers cannot be sustained till next spring,” he said.

“I urge co-ops to give farmers a confidence boost after a very difficult 12 months, bearing in mind that current weather conditions, if sustained, could further increase the quantities and the costs of purchased feed, and to commit to holding their milk price till next spring at 38c/l,” he concluded.

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