Recovery in Fonterra Auction Powder Prices a Positive Indicator for 2012 – Kiersey

IFA National Dairy Chairman Kevin Kiersey said this week’s Fonterra auction prices, up by a weighted average of 1.7% for trade up to June next, was a positive indicator for dairy prices in 2012.

Mr Kiersey said whole and skimmed milk powder had fared particularly well. He reminded co-ops that stable EU dairy commodity prices and the accumulation of significantly improved margins by most milk processors in 2010 and 2011 should make it possible for most of them to pay an end-year bonus on 2011 milk supplies.

He said, “The Global Dairy Trade (Fonterra) auction saw powder prices coming back strongly after a weak summer, with SMP prices up 3% and WMP up 5.7% – the bulk of this increase bearing on 2011 year-end trade. This augurs well for a stabilisation of international market prices for those commodities.”
“While the other commodities fared less well in this, the second October auction, some, such as milk protein concentrates and Cheddar, had performed better than powders over the summer,” he said.

Kevin Kiersey said, “Much has been said in recent weeks about the significant increase in global milk production (up 3% in the first half of 2011) overtaking demand, with consequent weakness on global dairy commodity prices, especially for 2012. However, this latest auction is showing that global powder prices at least are now recovering. It is simply too early to predict what may happen in 2012.”

“Meanwhile, significantly improved margins between market returns and prices passed back to farmers have been achieved by co-ops in 2010 and 2011. It is obviously crucial that these would be invested wisely and preferably jointly into projects to further improve efficiencies within the industry and to provide for expansion. However, I believe there is scope for many co-ops to also pay an end of year bonus to their suppliers, who will also need to make important on-farm investment to prepare for the post 2015 era,” he concluded.